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.

This policy began to manifest itself in increasingly ambitious public works and investment strategies. The creation of the Jebel Ali Free Zone, and the expansion of the Dubai Port to its current status of ninth-largest in the world, gave Dubai a vital infrastructural asset allowing the emirate much greater access to shipping revenues and giving it an important role in the Middle East’s transport and trading system. But more eye-catching, and in the long-term perhaps more fundamental to Dubai’s chances of success, were architectural projects such as the world-famous Burj Al-Arab hotel, the sail-shaped wonder on the Gulf Coast which stands as the world’s tallest hotel and has been used in numerous advertisements and promotional media. Iconic projects such as this gave Dubai an international face which could be used to create the brand, “Dubai”. The emirate began to establish itself as a must-do holiday hotspot, with the seven-star splendour of the Burj Al-Arab supported by thousands more five-star hotel units available at comparatively low rates. Soon, visitors could fly to Dubai on the emirate’s own well-respected higher-end airline, Emirates, enjoy some of the Middle East’s finest cuisine, shop in air-conditioned comfort at some of the largest malls in the region, and stay in any number of luxurious hotels – where only a couple of decades previously there had been little more than desert. Jaw-dropping installations such as indoor ski parks boasting real snow, and the forthcoming Dubailand theme park – the world’s largest when completed – are aimed to provide tourist temptations which are simply unequalled anywhere else in the world.

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.

The emirate of Dubai – which is much bigger than the city of the same name, though the two terms are effectively interchangeable – is now established as a key economic player in the Middle East and the wider world. Its income in 2006 was estimated at $46 billion – not bad for a settlement of little more than a million inhabitants – and it remains one of the fastest-growing economies in the world, as well as one of the fastest-expanding metropolises. The standard of living in Dubai (for all other than the many thousands of migrant workers through whose labour the city is stretching for the stars) is as high as anywhere in the Middle East and while living costs have shot up along with the city’s growth, it is still a more affordable destination than the likes of London, Tokyo and New York.

Although the fundamentals appear sound – effectively, demand for the Dubai brand among corporate clients and individuals remains high – it is too early to say for sure whether the Maktoum’s project will succeed. Other Middle Eastern cities are setting themselves up as direct competitors to the Dubai vision, while global financial instability could interfere with the currently smooth rolling-out of the masterplan. However, thus far the project – the Dubai economic miracle – is succeeding perhaps beyond even the Sheikh’s wildest dreams, and the landscape of this corner of Arabia has changed beyond recognition. The lure of the profit has proved sufficient for many thousands thus far, and matters are unlikely to change significantly while the next phase of the project is implemented.

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.

Dubai’s transport system is, to put it kindly, a bit of a mess; more residents have equalled more cars, and while significant investment is going into new roads (and a new multi-billion-dollar metro system) extensive gridlock is a fact of life for commuters. As such, homes near the numerous “cities within a city” in the west of Dubai, or near the high-rise zone of Sheikh Zayeed Road are a more attractive proposition for the new wave of professional tenants and buyers. Having said that, the development of new commercial zones in other parts of the city, including north-east of Dubai Creek in the old Deira district (which used to be the effective city centre) may mean that long-term such considerations become less relevant.

Non-working expatriates – those in Dubai for the high-life – might still look to luxury apartments (of which there are a growing number at the very top end) but, as mentioned, the villa model is a far better bet. Investment opportunities at the top end, however, are relatively limited since most users will be owner-occupiers (thus restricting rental potential) and the heavy initial outlay makes flipping a risky business at this level. Middle-range villas catering for families or cohabiting professionals are again most attractive when located near the commercial districts or in premium suburbs such as the Palms.

Those looking for short-term rental gains are up against a flourishing hotel sector but this doesn’t mean there isn’t great potential here: visitor numbers are rising by hundreds of thousands annually and will continue to do so, assuming the ongoing success of the Dubai masterplan, for many years. A key driver in this sector will be the gargantuan Dubailand theme park which contains several foreign-buyer-oriented districts; once fully operational in the middle of the next decade this is intended to challenge Disney’s establishments for the title of the world’s leading theme park and a well-situated, well-marketed apartment in Dubailand could see year-round short-term rentals and consequent high yields – although this is of necessity a longer-term strategy since work on the park will be ongoing for several years and such a unit might be best used for longer-term rentals in the interim. It’s also advisable to keep an eye on the condo-hotel market in Dubailand; the first products are already available and, while there is of course no such thing as a guaranteed winner in the property game, with vistors in their tens of millions expected to pass through the gates of Dubailand when all areas of the park are on-stream, this could be the closest thing to it.

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.

History

Perhaps fittingly for one of the most ultra-modern settlements on the planet, Dubai’s history – at least, that of which knowledge has survived – is less extensive and less dramatic than those of most other emerging markets. We know very little about the area of the modern United Arab Emirates before later medieval times, and no records of a place called Dubai exist from before AD 1095; however, in general terms we know that pre-Islamic south-eastern Arabia was contested between the Byzantine and Sassanian Empires, and that the south coast of the Persian Gulf was an important trading link between European and Asian cultures. The Sassanians were finally driven out in the late seventh century by the Ummayid Caliphate who installed Islam as the governing religion and jurisdiction.

European knowledge of Dubai dates back to the later 16th century when Venetian visitors recorded that the site was established as a pearling community; however, the town of Dubai (rather than a tented settlement) can only be dated with assurance back to 1799 and at this time it was merely a small and relatively inconsequential outpost. In the early 19th century Dubai was established as a kingdom - albeit one subservient to neighbouring Abu Dhabi until 1833, when the Al Maktoum family who still rule Dubai today seized power from the previous rulers in an apparently bloodless takeover.
During the 19th century the settlement of Dubai grew steadily wealthier through commerce, and its permanent population increased along with its affluence. In 1841 much of this population was ravaged by a smallpox epidemic which forced settlement across Dubai Creek to the Deira district; this in turn was all but destroyed by fire in 1894, but rebuilding was swift and Deira continued to be considered the heart of the city until very recently.

Dubai, along with many other Gulf territories, came under British protection during the latter stages of the 19th century as a result of the strategic importance of its proximity to India. The British took effective control of the region’s foreign policy and established preferential trading rights in exchange for protecting the so-called Trucal States from attack by its neighbours, in particular the Ottoman Empire. However, the First World War and the Great Depression severely damaged both the economy of the Trucal States – Dubai’s pearling industry never recovered – and the effectiveness of British intervention. While Britain continued to maintain a presence in the Gulf – and in Dubai in particular, moving its administrative headquarters there from neighbouring Sharjah in the 1950s, and in the process bringing electricity and telecommunications to the emirate for the first time – its time as a regional power was clearly running out.

In 1966 Dubai established with nearby Qatar an independent currency, the Qatar/Dubai riyal, indicating its rising self-assertiveness and willingness to cooperate with its fellow Gulf states. Of greater import that same year, however, was the discovery of oil in the emirate; international oil companies flooded in along with many thousands of workers: professionals mainly from Europe and North America, and labourers from South Asia. Dubai’s population skyrocketed by up to 300 per cent in the first decade of oil production.

In 1971 Dubai joined with Abu Dhabi (with whom it had exchanged hostilities at various times in the preceding decades as a result of border tensions) and five other neighbours in the formation of the United Arab Emirates, the independent sovereign nation of which Abu Dhabi and Dubai are the pre-eminent member-states. With a common currency, the UAE dirham, and a unified foreign policy, though with very different domestic policies and regime-styles, the UAE states have flourished since independence; Dubai, however, while neither the richest nor the largest emirate, has established itself as the UAE’s leading commercial and financial light and under the stewardship of its last two Maktoum rulers has risen through canny investment and revolutionary branding to become one of Asia’s most innovative markets, and a source of continual fascination for onlookers the world over.

Demographics

For numerous reasons an accurate demographic assessment of Dubai is extremely tricky to obtain; the only certainty is that any assessment will be out of date almost immediately. Although the government conducts regular censuses the rapid rate of change in the emirate renders these studies obsolete very quickly, as does the fluctuating size of the temporary population. More significantly, the origins of foreign labourers in the emirate are a matter of great debate; according to the 2006 census some 16 per cent of the work force in Dubai were not classified according to ethnicity, while other studies show that 71 per cent of the total population – which presumably would include much of this 16 per cent - are of South Asian origin.
The 2006 census puts the population of Dubai at 1,422,000, of whom 1,073,000 were male - indicative of the priority placed upon commerce and the professional sector in the emirate. Only 17 per cent of Dubai’s population is composed of UAE nationals, while three per cent was categorised by the census as “Western” (of which Britons comprise the largest single national group). Arabic is the official language but as might be expected many other languages are spoken, including a plethora of Asian dialects; English is the unofficial second language. Islam is the official state religion although other religions are tolerated; in the UAE as a whole only 4 per cent of the population is non-Muslim. At 77.9 per cent literacy in the UAE is remarkably low for such a developed nation, but the vast majority of those not functionally literate are found among the labouring sector.

THE CURRENCY: United Arab Emirates Dirhams (AED)

POPULATION: United Arab Emirates – 4,621,399, Dubai – 1,422,000                        

MAJOR AIRPORTS: Dubai International Airport