The supply of completed villas is tight in Dubai, and the announcement of 97 per cent mortgages by Tamweel can only fuel prices higher in this sector. Indeed, the confidence of this lender will boost the confidence of buyers creating a virtuous upward spiral.
How high can villa prices go in Dubai? The original Meadows villas are up in value from around $1,250 per square metre to closer to the $3,750 mark. That takes a villa with a floor area of 300 square metres up to $1.1 million, three times the price paid to the developer.
Yet a comparable property in Singapore would sell for nearer $3 million. So can a true comparison be drawn between property in Dubai and Singapore for villa prices?
It takes some imagination to look past the cranes on the Dubai skyline and into the future. But go back a quarter of a century and Singapore looked very similar. And the supply and demand equation for villas was probably the same then.
Not enough villas
So far Dubai has built around 12,000 freehold villas. There will perhaps be the same number again delivered over the next five years, including the Dubailand projects. It is a simple fact that villas take up land, and land in a good position is always in short supply.
At the same time the figure of 300,000 apartment units coming on to the Dubai market over the next four years is generally accepted. Hence supply is unlikely to fall short of demand for apartments, but it almost certainly will do for villas.
After all, where do expatriate families prefer to live in Dubai: villas or apartments? Most people with children would like a self-contained garden and their own space.
Local Islamic home finance specialist Tamweel appears to have recognized this supply and demand imbalance, and has decided to offer 97 per cent finance on all completed villas. This clearly makes buying more attractive as you don't have to find a big deposit and tie-up your capital.
Tamweel has understood that the property market for villas is far more solid than the outlook for apartments, and so is prepared to take a bigger risk on loans for villas than apartments. But this also helps to reinforce the strength of the villa market by making it an even more attractive option from the financing perspective.
This additional demand will now act on the restricted supply of villas forcing prices even higher. Who knows perhaps in five years' time Dubai villa prices will be up to the same level as Singapore's – the basic hub port, free-zone business model of the two cities is very similar and highly paid individuals work in both places.
In this light, prospective buyers of villas in Dubai should not be put off by the price increases that have already occurred. There is still a lot of upside to villas which are usually significantly more expensive than apartments in major cities.
In any case the early prices reflect a historic cost of construction that would not be obtainable today, and a zero land value which was a necessity of the time but certainly not true now with the Dubai Land Department busily registering the titles of foreign freehold owners.