Dubai is now one of the fastest growing tourist destinations in the world. It’s easy to see why – a fabulous climate, luxury hotels, excellent restaurants plus good education, healthcare and leisure facilities are only a few of the attractions. In 2004 Dubai attracted 4.7 million tourists; by 2010 Dubai will attract 15 million hotel visitors, according to the Dubai Department of Tourism and Commerce Marketing.
Dubai ’s population has increased by around 50 per cent in the last five years to an estimated 1.5 million. This figure is predicted to double by 2010. Good, tax-free salaries for ex-pat professionals and excellent communications and business facilities means Dubai is considered to be an extremely desirable place to live, not least because it also offers continually strong GDP growth – 7.4 per cent in 2004 – and political stability. Television programmes such as Dubai Dreams have also led to a surge of interest in the area.
Differences
However, should brokers recommend their client invest in a country where the culture, lifestyle and legal issues may be very different from what they are used to?
Over the last couple of years the Dubai market has changed dramatically, mainly because of a shift in legislation to allow non-residents to buy property. In order to attract qualified residents and investors to help sustain its growth, Dubai has enabled 100 per cent foreign ownership of property and has quickly established a worldwide reputation as a good place to invest in property. Investors can obtain residency visas just by owning a freehold property.
Dubai ’s rapid growth is fuelled by the government’s determination to encourage tourism and further diversify its non-oil trade. Oil now accounts for only 23 per cent of the GDP while property is now the single most advertised category in the UAE. The type of property on offer has changed too. Until 2004 most developments were very much at the high end of the market. Now there is a much wider range on offer, aimed at the tourist and business traveller as well as those wanting to make Dubai their permanent home.
Apartment accommodation
To anyone seeking temporary accommodation, serviced apartments can offer a more spacious and better value alternative to the rarely available hotel rooms in Dubai. The intense demand for rented accommodation from both the local and international markets means investors can achieve potentially high rental yields but with this comes the challenge of first finding, and then retaining, tenants. To eliminate this risk a number of companies offer annual rental guarantees as high as 8 per cent which enable the client to receive income on their investment without having to go through the process of finding tenants and managing and maintaining the property.
Potential downsides
It’s clear there are many good reasons to buy property in Dubai. But clients naturally want to know whether there are any downsides. As in most countries, there are some.
Firstly, Dubai’s popularity has meant phenomenal growth in the number of real estate developments being built and demand from overseas investors now exceeds the available supply in many developments. The next two years could be more difficult however, because the amount of residential property currently outweighs the availability of commercial property.
To help overcome this, investment companies, such as MiNC, offer the rental guarantees mentioned above. Using an agent with local knowledge and experience is vital; although Dubai is now a fashionable place to invest there aren’t that many companies that have real expertise in the marketplace or, for example, the local knowledge to provide appropriate and value-for-money furnishings for buy-to-let properties. Secondly, a land registry is not yet in place but it is planned for early in 2006. When it does come in, mortgage finance will be more readily available. Currently there are no repossession laws because of a lack of land registry.
These risks have to be weighed against the fact that demand for property in Dubai has boomed in recent years and we have every reason to believe the market will continue to grow rapidly, fuelled by economic growth of 7 per cent and single figure inflation. Dubai has already earmarked $50 billion dollars for investment into the real estate market between 2004-2010.
The variety and high quality of property available to investors is huge. Prices range from £30k for a studio to exclusive villas at £2 million. Rental yields of 8-10 per cent also go some way explaining the strong interest in Dubai property. Investors will also be encouraged by the continual growth of Dubai’s infrastructure, with numerous projects currently in the development phase, including a new airport, a state of the art monorail system and the $5 billion dollar Dubai Land, which will be the biggest theme park in the world when completed.
Agents
Brokers should always advise their clients who are considering purchasing property in any country that they need to be clear about why they are doing it, and that they should carefully weigh up the risks and benefits. Dealing with an agent with an established office in the target country can reduce some of the risks as they will have the local knowledge to be able to recommend how and what to buy, and also offer ongoing advice.
However, it doesn’t take much local knowledge to be sure that any client who does decide to buy property in Dubai will be investing in one of the most exciting and vibrant cities in the world.
Kamran Mahmood is director of MiNC Property Enterprises
