Fast forward to the year 2010, this is the year that the GCC plans a monetary union. The general opinion is that this event will be accompanied by an upward revaluation in the new currency against the US dollar. Good news then for home owners who will benefit from an upward revaluation of their property in US dollar terms.
This month's 'Middle East Focus' bulletin from the economists at Standard Chartered Bank treats readers to a technical analysis of the implications of the likely GCC monetary union in 2010 and the implications for corporate borrowers from the point of view of US dollar hedging.
However, for individual property owners and mortgagees in Dubai the implications are far closer to home. Indeed, the revaluation of the dirham will have profound implications for the value of their principle asset.
The Standard Chartered economic team thinks a devaluation of the dirham in such a context is unlikely. Rather the dirham will be upwardly revalued alongside fellow Gulf currencies like the Saudi riyal against the US dollar, and interest rates may well be pitched slightly higher.
Thus for owners of Dubai property the likelihood is that real estate will gain from a realignment of currency valuations. In short property could jump 10-20 per cent thanks to a new valuation for the dirham in terms of US dollars.
At present the dirham is artificially undervalued which contributes both to high inflation and low interest rates which are too low for the booming local economy. A unified GCC currency with its own central bank, based presumably in Riyadh, would set an interest rate and currency value more in line with local circumstances.
Standard Chartered Bank is already recommending its corporate customers to examine hedging policies on medium term loans to ensure that interest rates are optimized. But the same currency awareness should be equally applicable to home buyers.
For example, why not buy a Dubai property now with a US dollar mortgage? On this outlook then you would benefit from an upward revaluation of the dirham while having a debt pegged in US dollars which carries a lower interest rate.
Such arbitrage opportunities often occur when a permanent change to currency arrangements appear on the horizon. Why not take full advantage, although there is always the risk that the change does not happen?
However, major one-off shifts in currency values do not appear very often and frequently present some of the soundest chances for one-off gains. This is effectively the upward revaluation of a nation's assets.
Now does not Dubai property look undervalued by global comparisons? In that sense the currency union scheduled for 2010 might be just another step on the ladder towards a global valuation for this asset class, and one that investors will kick themselves for not having appreciated at the time.