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Investment Property in Dubai |
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Quite simply, Dubai is one of the most extraordinary places on Earth. For most of its short existence nothing more than a sweltering trading settlement perched on the edge of the Arabian peninsula, in little more than a generation Dubai has soared into the global consciousness as one of the most dynamic, innovative and architecturally remarkable cities on the planet. Under the stewardship of the ruling Maktoum family – and in particular its current leader, the visionary Sheikh Mohammed – this arid emirate has established itself as a leading financial, commercial and tourist centre; with its investment vehicles now extending operations across the world, and with a host of multinational entities firmly established within Dubai itself, the emirate is an increasingly important piece of the global economic jigsaw, and tour de force prestige projects such as the staggering Palm islands and the Burj Dubai, due to be the world’s tallest structure on completion, are only the most prominent assertions of Dubai’s rise to greatness.
Economy Dubai’s remarkable success is due in no small part to the farsightedness of its ruling house and, especially, Sheikh Mohammed bin Rashid Al Maktoum, ruler of Dubai since 2006 but instrumental in its development since long before his accession to the throne. The Maktoums realised several decades ago that the oil whose production contributed the vast majority of the emirate’s income was not an infinite resource, and that oil revenues could be used as the springboard for Dubai’s economic and physical transformation, with an eye to creating a sustainable economic future for the emirate once oil and gas production began to decline. The Maktoums have poured huge sums into the creation of themed commercial zones, or “cities”, within the emergent urban area of Dubai. These zones, such as Dubai Healthcare City, Dubai Internet City and many more, formed bases for incoming multinationals looking for a toehold in the Middle East; drawn in by Dubai’s sympathetic tax regime (there are effectively no income taxes in the emirate) and the need to establish a firm footing in the region to come with in the increased economic prominence of the Arab states and nearby India, hundreds of vast firms such as Microsoft, Sony Ericcson, Intel and many others have established their regional headquarters in Dubai’s “cities within a city” – bringing with them, of course, a huge influx of foreign workers. This influx thus leads to another prong of the Maktoum’s development policy: real estate. The soaring population of affluent and skilled professionals resulting from the emirate’s economic expansion requires high-quality housing, and Sheikh Mohammed is providing this in abundance. Having signalled towards the end of the 1990s that he would formally allow foreign freehold ownership on Dubai soil, the Sheikh sparked off one of the biggest construction and property booms in history; thousands upon thousands of new apartments, villas and pretty much every other type of accommodation imaginable have sprung up from the desert, seeing the city of Dubai expand to many times its original extent. An array of soaring skyscrapers – including the world’s tallest, the Burj Dubai and numerous other supertall constructions – now pierces the Arabian sky in a number of new districts whose total construction cost runs into the hundreds of billions. Consequently, investors from across the world have flooded into Dubai’s property market and prices have risen manifold since the beginning of the boom, along with rental rates: demand is so high that the Sheikh was forced to impose an annual cap on rental increases at the beginning of 2006. The launch of the sprawling Palm artificial island complexes, and their brethren The World and Dubai Waterfront, onto the market have quite literally changed the face of Arabia, as well as of global real estate. Investment Only a few years ago properties in Dubai could be snapped up extremely cheaply compared with their equivalents in established markets like the UK, and early-bird buyers saw manifold returns on their investment in a very short space of time. This is no longer the case; the market soared as Dubai went mainstream and property prices, like the cost of living, are now much nearer Western norms. This does not mean that Dubai’s investment day is done; what it does mean is that more careful strategising is required, buyers need to be more discerning, and their expectations need to be kept lower than they might have been back in the gold rush at the beginning of the decade. On the plus side, the superb tax incentives (no income or capital gains taxes) which attracted foreign workers in the first place remain just as tempting for property investors. Location is critical – in more ways than one. Firstly, while Sheikh Mohammed has allowed foreigners to buy freehold property in his emirate this permission does not cover all of Dubai. Instead, individual buyers who are not GCC (Gulf Co-operation Council) nationals can only buy in a number of pre-approved districts, limiting investors’ ability to target the bottom end of the market. The zones approved for foreign investment, understandably, are dominated by new properties and planned developments and the great majority of these comprise middle to high-end units. While in most other emerging urban markets the most sensible strategy is to invest in apartments to target the young professional class, in Dubai the single-family home model can be just as effective an option. There are several reasons for this: the emirate likes to attract and cater for foreign families and has invested a great deal in education and family-friendly facilities, and a good proportion of expatriate workers do indeed live with their families in Dubai; another good proportion, meanwhile, are very affluent and prefer the comfort and commodiousness of larger, more prestigious properties (the most sought-after properties on the Palm Jumeirah, for example, are waterfront villas). Another key factor is that because Dubai has grown so quickly from such a small area, the availability of land is not such a limiting factor as it is in older cities and therefore it has proven much more cost-effective to throw the odd townhouse or golf villa project into the masterplan. This is not to ignore the value of the apartment sector – the majority of homes being built are apartments and demand is still sky-high – but merely to highlight the greater diversity of valid investment options available. Buying off-plan is still a key element of investing in Dubai, but the sheer number of developments now on offer means that flipping has become much harder and, as mentioned, location has become all-important. While it is still possible to make a profit selling before completion, it’s safest to factor in a period of rentals before selling further down the line – since when selling an unfinished home an investor will be up against extremely savvy and ferocious developers looking to offload their own incomplete units. An existing home demonstrating steady rental returns represents a viable proposition while an unfinished unit represents a significant risk in a city where many thousands of similar incomplete properties are also on the market. Buy in the right place and aim on completion to let your property out before selling it, and you could have the key to Dubai’s property treasure chest. This editorial is abridged. |
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