Tuesday, 29 January 2008

Latest real estate project by Nakheel re-defines Dubai property industry

Nakheel, one of the master realty developers in Dubai and creator of the 3 Palm Islands and 'The World', has re-defined Dubai property industry by unveiling its fifth offshore project, 'The Universe', a mega-development of residential, commercial and tourism projects. 'The Universe' is a collection of large coral-shaped islands; covering 3000 hectares, it will stretch from Palm Deira and Palm Jumeirah

“The biggest risk is not taking a risk at all,” said Sultan Ahmad bin Sulayem, Executive Chairman, Nakheel. 'The Universe' will be developed in a span of 15 to 20 years. Nakheel expects overwhelming investor response to its latest offering, along the lines of what 'The World' evoked a few years ago. About 50 percent of 'The World' has already been sold out.

In addition to the unveiling of 'The Universe' and the iconic 'Blue Communities', Nakheel has also announced the launch of a third real estate project in Dubai that will replace the historic Port Rashid. Spread over 700 hectares, this development will take more than 10 years to complete and is slated to accommodate over 300,000 people.

Why Dubai is getting too crowded for comfort

Clare Aggarwal is a “professional landlord and investor”, according to The Mail on Sunday. Her latest purchase was a £174,000 two-bedroom flat in Dubai – “my first venture abroad”. The flat doesn’t actually exist yet – it’s just one of 504 apartments being built in The Torch, a 74-storey building on Dubai Marina, and is due for completion in March 2008. Nonetheless, according to Aggarwal, Dubai’s increasingly foreigner-friendly property laws – foreigners can buy freeholds, although only in special zones – have “added another 15% to the apartment’s value and it will hopefully have doubled when it’s all done and dusted”. “I am told the rental income is between 12% and 15% per annum,” she says.

Readers who are on the ball may be starting to wonder a little – how can someone be so sure of rental income for a flat that won’t actually be inhabitable until more than a year from now? Perhaps they won’t then be surprised to learn about how Ms Aggarwal found the property – “I saw an advert in the paper, looked into it and put my money down”. She has, of course, actually been to Dubai, “on family holidays six or seven times”.
But not in the past two years – “I couldn’t afford the flights”.

Ms Aggarwal is far from being the only Briton staking vast sums of money on a building site she can’t even afford to visit. Despite Dubai’s “congested, half-finished roads” and the frequent hazy smogs produced by a “combination of pollution, sand and building dust”, the country has proved popular with other amateur landlords. According to Adam Price of Dubai Select, the UK firm selling sites in The Torch as well as two other huge developments, 75% of buyers are middle-aged British people.

And more developments are being built all the time. It seems the entire city is a building site – “there are more than 250 towers in the Jumeirah Beach and Dubai Marina area alone”, says The Mail on Sunday’s Sarah Hartley, while “billions” are being spent on hundreds of “residential supertowers” in the same mould as The Torch.

It’s perhaps no surprise that property speculators have been attracted to Dubai – figures from Asian banking group Standard Chartered suggest that prices doubled in the three years to the end of 2005. But the bad news for Ms Aggarwal and her fellow investors is that the bank believes “we are getting close to a peak in residential property prices”. In fact, it seems that prices may be falling already. The group’s residential property market index reports that prices have risen by nearly 19% in the year to October.
But that masks huge volatility in the data as well as regional variations.
In five of the last eight months, the index suggested that prices had actually fallen. And in the New Dubai area, which includes the much-vaunted palm-shaped Jumeirah Beach development, prices were down 5% in the year to September.

It’s unlikely to stop here. “Supply is set to grow rapidly in 2007, outstripping demand growth,” says Standard Chartered, quoting data from Egyptian investment bank Prime Group. “Taking into account delays in the delivery of properties, 52,000 and 63,000 properties will be delivered in 2007 and 2008 respectively.”

The bank continues: “Given a reasonable assumption of 7% population growth for the emirate, it suggests this will lead to an excess supply of around 6,000 units in 2007 and 33,000 units in 2008.”

The bank reckons that prices will fall by 20% to 30% over the next two to three years – but that could well be optimistic. Dubai has already seen what can happen when asset prices get wildly over-inflated by rampant speculation – earlier this year the country’s stockmarket dived by 65%. Speculators scrambled for the exits as stockmarkets across the world were rattled by US inflation fears and the threat of falling global liquidity.

It seems more than likely that the same could happen in its real-estate market.When Ms Aggarwal and her fellow overseas investors realise that their off-plan high-rise in the sun could well be worth less than they paid for it by the time it’s actually been built, there will be a rush to offload. As Sarah Hartley puts it, “With a fledgling resale market, it remains to be seen whether demand will ever meet this enormous supply.” We think we know the answer already.

Omniyat CEO dismisses Dubai property ‘bubble’

Omniyat Holdings CEO Mehdi Amjad has dismissed recent speculation regarding the bursting of the Dubai real estate ‘bubble'.

"There is no bubble and I don't believe markets will see a sharp bust. We keep hearing that the supply and demand will be realised in 2008 or 2009, but while I believe that demand will become less extreme, it will continue to outweigh supply."

Amjad believes that a lessening in demand will be healthy for sustainability in the long-term.

"If Dubai has one or two years of inflation, then that's okay. But a decade of inflation is unhealthy. Long-term sustainability is the key for Dubai and the government is addressing this issue successfully."

Amjad said the Dubai market is continuing to absorb new launches, despite projects being delivered. This was displayed with the recent delivery of the International City and Jumeirah Beach Residence projects, he said.

"People were predicting that the release of JBR and the International City would lead to a decrease in demand, but the more than 25,000 units in JBR have been absorbed into the market without causing even a small drop in demand."

Amjad said Dubai is aggressively targeting population growth, which will also lead to growth in demand for real estate.

"The government is building a city for five million people whereas today we have fewer than two. This means that whatever is supplied now will not be enough," he noted.

"Markets are at a maturing stage. Rents are up and there are many people who are currently renting but who intend to purchase homes. This includes people who are on lower to middle incomes who are lower risk takers, and have been waiting to purchase properties.

"Finance and mortgages are increasingly available to these people, so more demand is being created there. There is a shortage in terms of products in this area of the market which we are addressing."

As a result of this new trend, the developer is looking for opportunities in the residential sector, and Omniyat will unveil a new 1.5 million sq ft residential waterfront development at the Cityscape exhibition in October, he said.

While few details are being released, Amjad described the project as a unique and surprising product, offering a combination of residential and retail space.

Amjad believes both institutional and private investors are also driving property demand in Dubai.

"Dubai is now seen as an international hub and foreign investors are being attracted to investing here. The new trust law is also helping these investors to have trust in the transparency of regulations here. Although we are yet to see the law in operation, I think its existence adds a professional structure to Dubai's real estate markets."

The majority of foreign investment is coming from the UK and Europe, but institutional money from the US and Asia is also increasing, he notes.

Amjad has his own development plans for international expansion, beginning with Saudi Arabia, and Abu Dhabi. He intends Omniyat to become an international company by 2008.

Friday, 25 January 2008

Foreign residents ‘fail to register properties’ in Dubai

Only a tiny proportion of foreign residents who have bought property in Dubai have registered their purchases with the emirate’s Lands Department, a senior official has revealed.

More than 4,000 properties have been entered in the books, said Director-General Sultan bin Buti bin Mijrin. But this figure represented only the tip of the iceberg in Dubai’s booming real estate market, he told Emirates Business.

“We have advised all property owners to register with the department or else face higher fees,” he said. “Despite that we have seen very few registrations in comparison to the total number of properties sold.

“Our figures do not represent the actual number of foreign investors in Dubai’s property sector – they cover only those who have registered with us. There are many who register only with the developers and not with us.”

Bin Mijrin said Indians topped the list of owners with nearly 700 registrations. “Britons come next with 489 buyers, followed by Iranians with 373. Among GCC nationals, Kuwaitis topped the list, followed by Saudis, Qatari, Omanis and Bahrainis.

“Dubai’s healthy economic image and the stability of the UAE are the most important reasons for foreigners to invest in property here.”

The property market is an attractive and promising sector.

“Foreigners buy in Dubai for many reasons. Some buy properties to live in. Others – especially GCC nationals and other Arabs – buy holiday homes. Then there are those who treat property as an investment, either to lease or resell.”

Drive away with a Bentley in Dubai

A Dubai-based property company is hoping to lure Irish and other international buyers by giving away BMW and Bentley cars to any purchaser signing up to acquire one of its properties over the next month.

DAMAC, headquartered in the United Arab Emirates, says that BMW cars will be given to those who commit to buying a studio or two-bedroom apartment in Dubai over the next four weeks, while more expensive Bentleys will be given to those who buy duplexes and penthouses.

The promotion is expected to cost in the region of €16m and coincides with Dubai's annual shopping festival. All buyers are being entered into a draw to win a €1m aircraft and a private Caribbean island.

DAMAC is a significant player in the Middle Eastern property market, and is developing 80 properties in various countries.

This week it said that would construct an apartment complex in a new 140 sq km city being developed close to Dubai's international airport. The new city is expected to be home to 750,000 people when complete.

Dubai is in the midst of a property boom, with high oil prices helping to drive investment into the sector.

However, last week the US-based Institute of International Finance (IIF) said that a weak US dollar and any softening in oil prices could result in inflationary and exchange rate pressures in the region.

Inflation is already trending upwards in the United Arab Emirates.

Last autumn, global property firm Colliers International, also cautioned that Dubai's property market could hit turbulence by 2009.

Which is better investment option - Dubai or Abu Dhabi?

Abu Dhabi is currently doing well in the property sector, and the recent Cityscape exhibition has only added to this excitement. However, the truth is that these major construction activities taking place in Abu Dhabi currently, is not being considered as a major threat to its matured neighboring emirate, Dubai.

It is a different kind of market, and the motivating projects that are being carried out at Abu Dhabi will bring about a balance in the overall profile of UAE as a business, residential and holiday destination.

However, whether Dubai or Abu Dhabi is a better investment option, will depend on individual requirements of the buyer. The massive demand for commercial and residential property in Abu Dhabi is actually soaring up the prices. However, the major supplies currently reaching the Dubai market, and the progress of the emirate in offering world-class infrastructure, will actually lure investors to Dubai who intend to occupy their properties very shortly.

However, this major growth of Abu Dhabi is a real booster for the UAE economy. This is clearly indicated by the project values which has touched 170 percent increase last year in comparison to 2005. With several new projects coming up, this figure is expected to increase even further during the current year.

The population in Abu Dhabi will be doubled in ten years and about 2,50,000 housing units will be required. This bigger picture indicates long-term sustained growth of Abu Dhabi market.

This optimism in Abu Dhabi is the result of combined efforts of tourism, leasehold ownership, development of infrastructure and international airport expansion, which will help in maintaining the prominence of the capital in the real estate market.

Sunday, 20 January 2008

Dubai World Finished

Dubai World phase one is finished after 5 years of work. Now the developers can come...

Dubai World - www.onlyindubai.org

Scary Dubai Metro System?

Dubai has a traffic problem. Everybody who lives here can see this daily, especially now during Ramadan.
Some people say this is normal in such a fast growing city like Dubai, others say it’s because of the reckless Dubai drivers. Some say the government of Dubai is responsible and there is no proper traffic planning. Whatever the cause is, it’s not going to be solved so easily. The Dubai government has a long-term plan which includes traffic planning. Part of this plan is the Dubai Metro System.
Dubai Metro 1 - Dubaiinformer
Construction work has already started, which ironically makes the traffic worse ;-)

The Dubai Metro System will have modern trains with full air-condition and all stations will be air-conditioned too (underground an elevated stations). Each 5 car train will be 75m long. There will be standard class, women and children only sections, and of course an exclusive first class section. All sections will feature high tech passenger information systems. The Dubai Metro System will be fully integrated in the public transport network of Dubai.

No need to be scared, even if you know that the Dubai Metro will be driverless. High standard safety features will make sure that everything goes smoothly. The system would allow trains to run at every one and a half minutes without any trouble.
Dubai Metro 5 - Dubaiinformer
The cars have huge windows for the best views of our lovely city from the slightly higher perspective (hopefully the ride will take long enough to see everything). The whole system will run with electrical energy, which makes it environmentally friendly.

The Dubai Metro System will have four lines.
The red line will run from Salahuddin Road (next to Al Ghurair Center) to the American University of Dubai, passing by Burjuman Center and Sheikh Zayed Road.
Dubai Metro 4 - DubaiinformerDubai Metro 6 - Dubaiinformer
This line will be extended later to Jebel Ali Port and to the intersection of Al Nahda and Damascus road.
The green line starts from Al Ittihad square (next to Dubai Municipality) to the Rashidiya bus station, passing by Deira City Center and the Airport terminals 1 to 3. Later on the green line will be extended into Deira and Bur Dubai.
The blue line runs on Emirates road and will connect the Dubai International Airport and Jebel Ali Airport.
The purple line will also connect these 2 Airports, but acts as an express line, serving new communities along Al Khail Road. All four lines will cover roughly 320 km (by 2020).

The first two lines alone will have more than 60 stations,
Dubai Metro 2 - Dubaiinformer
18 km of tunnels, 51 km of viaduct, one major train depot and maintenance facilities site and several auxiliary stabling facilities. The total fleet size will exceed 100 trains. In the city center the lines will run underground, outside the Dubai Metro System will be elevated.
Dubai Metro 3 - Dubaiinformer
Once finished (first phase in 2009), the Dubai Metro System will be the most advanced urban rail system. Investment costs for the full Dubai Metro System will reach more than 14 billion AED. The operating costs are calculated to be approximately 570 million AED per year. And eventually we wil have no traffic problems anymore here in Dubai ;-)

Saturday, 19 January 2008

Dubai Property Prices Are Falling

A warning on Dubai property prices has been issued by Standard Chartered Bank, which is predicting both residential sale prices and rents will fall back by 5 per cent next year. It reasons that with a stream of developments coming to completion, that even though demand currently outstrips demand, this situation will soon be reversed.

The bank suggests prices, which by its reckoning are still rising at 18.8 per cent per annum, will peak in the first half of next year. However, while Dubai will feel the heat, Abu Dhabi may move ahead on the back of recently liberalised investment rules.

A Prime Group report cited by Standard Chartered estimates that around 52,000 new Dubai residential units will be completed next year, with a further 63,000 set for release in 2008. Given ‘a reasonable assumption’ of 7 per cent population growth for the emirate, this suggests supply will exceed demand by around 6,000 units in 2007 and 33,000 units in 2008. The result is likely to be that property prices and rents will slip for the next two years.

‘We have argued before that residential property prices are likely to come down around 20 to 30 per cent in the next two to three years and we believe that we are getting close to the peak in residential property prices’, said Steve Brice, regional head of research for the bank for the Middle East.

‘While demand is likely to remain strong in the coming years, as Dubai continues to focus on diversifying its economy away from oil, the key is supply’.

The Bank said prices jumped by an ‘extraordinary’ 12.9 per cent in October after a 1 per cent fall between July and September. This ‘may have come from a realisation that estimates for the release of properties reported for the second half of the year are unlikely to be attained. Indeed, one developer at one point suggested it would be releasing 60,000 units onto the market in the second half of 2006 and Prime Group now estimates the full year market figure will only be 40,000. There may also be a seasonal effect at play here’.

Liquidity and supply issues drive Dubai prices higher

Waiting for a housing crash to buy a property is like hoping to win a raffle. The chances are it may never happen. And when it does you may not have the ticket to claim your raffle prize or the cash to put down on a deposit.

A word of caution to the many pundits who predict a housing crash in Dubai: one thing well known in the prediction business is that when so many people are predicting an event, it seldom happens, or it does so very much later than predicted.

Consider the UK housing market. How many people said the market was becoming overheated in 1999? And yet there was no sign of a downturn until the summer of 2004, and even now prices have barely moved from their peak levels, despite a series of interest rate rises.

The Dubai Marina factor
The same school of analysts now takes a long-look at the Dubai Marina apartment towers shooting up, and concludes that the end of the Dubai property boom is nigh, and that oversupply is clearly close. But this is not what we see in the marketplace.

It is presently very difficult to find a property to buy in Dubai, and even if you move fast the home that you like is likely to be snapped up from beneath your feet by somebody offering more money. This is an ongoing boom, though admittedly mainly for completed property.

The rental market in Dubai has soared so high this year, up 40% on some reckonings, that the Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum has ordered a 15% rental rise cap until the end of 2006. This is hardly the stuff of a property market about to collapse.

Even the upcoming supply is contributing to the boom in prices and rentals by running later and later. For each month's more construction delay means higher rentals and prices in the completed housing market.

What is the base price?
With the huge liquidity in the region is it not more likely that house prices will go higher in the immediate future, before reaching a peak? It could well be that today's prices are therefore the new base price to which prices will fall in a 'housing crash', or the base price level may actually be higher than we see right now.

Meanwhile, those potential buyers who choose to carry on renting have to pay the very high current rental prices; and while the 15% rent cap protects existing tenants, it probably will not help new tenants avoiding a rent rise. Besides which, do not higher rental prices in themselves have an impact on property values?

Surely higher rents make properties worth more, not less? Around the world rental yields are often presently around 50% lower than in Dubai, and why should property investors expect to earn more in a booming city like Dubai? Yet rents have risen by more than house prices this year, can this go on much longer?

No, the immediate pressure on Dubai house prices is all upwards. No doubt supply issues will kick in later on, but this may not be for two or even three more years, assuming that oil prices do eventually come down. But will this happen? Oil supply issues suggest a different market dynamic may be in place.

If oil is now permanently higher in price then Dubai property will settle at a permanently higher level of value as Dubai will become one of the richest cities in the world, and in rich cities property is not as cheap as it currently is in Dubai.

Dubai:Limitless begins work on $11b Arabian Canal project

Dubai: Real estate developer Limitless, part of the Dubai World conglomerate, has started work on its ambitious 75-kilometre Arabian Canal project.

The waterway will flow inland from Nakheel's Dubai Waterfront development in the Jebel Ali area to a point near the Palm Jumeirah man-made island.

Up to 150 metres wide and six metres deep, the $11 billion canal will support billions of dollars of real estate and leisure projects that will be constructed on both sides of the water.

Describing the Arabian Canal as "the largest and most complex civil engineering project ever undertaken in the Middle East," Limitless said the preliminary work will be completed in three months.


The project is expected to be completed in three years.

Limitless is also planning its biggest mixed-use development as part of the Arabian Canal project.

The $50 billion waterfront development will cover 20,000 hectares and stretch 33 kilometres along the inland section of the waterway, east of the upcoming Al Maktoum International Airport in Jebel Ali.

Chief executive officer Saeed Ahmad Saeed said the development has not been launched for sale yet even though some companies are reportedly saying that they have been appointed sales agents by Limitless.

"Limitless has not authorised anyone to act on its behalf in the marketing or sales of the Arabian Canal project.

"Limitless will make an official announcement when the project is ready to be released for sale," he said in a statement.

Company spokeswoman Rebecca Rees told Gulf News that work on the real estate project will start towards the end of this year.

The entire plan will be developed in phases over the next 15 years.


It includes marinas, residential communities and business centres serving about one million people.

The preliminary work under way does not involve digging of the canal, Rees said, adding that "actual digging will start in about three months from now."

Apart from the Arabian Canal, Dubai Waterfront and the international airport that could become the world's largest aviation facility, several other mega projects are under way in the Jebel Ali area.

More than 10 kilometres of the canal will pass through the Dubai Industrial City, which is being developed as a manufacturing hub in Jebel Ali, close to the Dubai-Abu Dhabi border.

Dubai Industrial City chief executive officer Rashid Al Ansari said recently that plans for commercial and residential buildings along the canal have not been completed yet.

Work on Dubai tram starts January 2008

Construction on the Al Sufouh tram network will start in January next year, aimed at providing an alternate mode of transportation in the fast growing area to ease traffic congestion.

The 15-km tram lines will run on Al Sufouh Road connecting the Burj Al Arab, Jumeirah Beach Residence and Jumeirah Lake Towers.

In an interview with Gulf News, the RTA said the tram project would be completed within 21 months and will be operational in September 2009, to coincide with the completion of the Red Line of the Dubai Metro.

The tram will be connected to the Red Line at three points; Burj Al Arab Station, Dubai Marina Station and Ibn Battuta Mall Station.

The tram will serve areas such as Internet city, Dubai Marina, Media City, Knowledge Village, JBR and a dozens of luxury hotels in the area, which have already started facing traffic congestion.

The first phase of the tram project has been nicknamed 'The Shopping Trolley' as it will provide a link to the major shopping areas including Mall of Emirates, the Madinat Jumeirah and Ibn Battuta Mall.

Thursday, 3 January 2008

Freehold prices rise

The price of freehold investments in Business Bay jumped by more than 90 per cent in 2007 and analysts have linked the increase to the new escrow law, delays in delivering office space and the strategic and desirable location. Prices increased by the largest percentage during the past four months, according to developers and real estate companies.

Shaher Mousli, CEO of Arthur Mackenzy Real Estate, said the issuance of the property law in July requiring escrow accounts or bank guarantees for all off-plan developments in Dubai was a necessary step taken by the government to protect investors and prevent developer delays. However, the move has contributed to an increase in property prices.

“The compulsory escrow account is aimed at putting an end to the trend when a developer could launch a project and collect deposits without a guarantee, so that the funds can be used correctly or immediately invested as promised,” he added.

However, the implementation of the law has dampened significantly the number of new projects launched at Business Bay, he said. And, subsequently, it resulted in a sharp increase in demand for the available projects.

Mousli added that his company is currently selling property for Dh3,000 per square foot on behalf of Omniyat Properties. “Our price is high compared to other projects as we apply advanced technologies. Some developers who have started with Dh1,500 per square foot are now selling at Dh2,500 to Dh3,000. Ninety per cent of our Dh3 billion three-tower project is sold out.”

Meanwhile, Mohammed Nimer, CEO of MAG Group’s Property Development Department, attributed the sharp increase in prices in Dubai’s giant office cluster to the shortage of office space and delays in delivery in the emirate in general. “Official statistics say the emirate’s population has risen by six per cent this year compared to last year. But I believe it is much higher,” he added.

As more companies chose to move offices to Dubai because of its infrastructure and tax-free status, the demand for office space has grown. However, the availability of office space is only a-tenth of the size of the residential property market, Nimer said.

Delivery delays have only tightened the crunch. Nimer said: “About 70,000 office units were rolled out through about 400 projects last year. But, only 30,000 units were actually delivered. This has resulted in a hike in prices.

“At the beginning of 2007, the price of our Matex project was Dh1,300 per square foot. Due to the demand it has increased to Dh2,000.”Ibrahim Bash, CEO of Bawn Investments, noted that Business Bay’s proximity to Burj Dubai, Dubai World Centre and the Dubai International Financial Market has also made it prime real estate for companies looking to set up shop. The price jump seen in the area, he said, is higher than anywhere else in the emirate.

The price of Bawn’s Dh500m office project, he noted, started out at Dh900 and has now reached Dh1,800 per square foot.

Emaar's Burj Dubai continues its ascent

Cladding work of the tower is now ongoing at an accelerated pace with 58 storeys already wearing the shimmering sheen of the high-performance cladding system. The primary materials used - reflective glazing, aluminium and textured stainless steel spandrels and vertical stainless tubular fins - accentuate the tower's height and slenderness to the eye.

Burj Dubai is now taller than Taipei 101 (508 metres; 1667 ft) in Taiwan and CN Tower (553.33 metres; 1815.5 ft) in Toronto, Canada. When completed, the tower will have used 330,000 cubic meters of concrete, 39,000 metric tons of steel rebar and 142,000 sq m of glass - and 22 million man hours. More than 5,000 consultants and skilled professionals workers are employed on-site at the tower.

Emaar Properties partners with South Korean construction major Samsung Corporation and New York-based Project Manager Turner Construction in constructing Burj Dubai, which is designed by Adrian Smith and Skidmore, Owings & Merrill of Chicago.

Burj Dubai is the centrepiece of Emaar's flagship project, the Dhs73bn ($20bn) Downtown Burj Dubai, a new downtown with residential, commercial, leisure, retail and hospitality components, set on 500 acres of land in the heart of Dubai. Burj Dubai will feature residences, commercial space and retail space and hospitality elements including the world's first Armani Hotel and Armani Residences.

Dubai Property: The brow of the hill

Concerns about property bubbles abound around the world. Dubai is no exception. In recent years, we have seen a dramatic price appreciation. By the end of 2005, we estimate that property prices had doubled in the previous 3 years. There have been several causes of the boom. First, the dramatic expansion in non-oil activity led to an increased demand for housing as more and more people relocate to the city. Second, high rental yields (estimated at around 8-10% for the apartment sector and 6-8% for the villa segment) have attracted investors into the market.

Third, the excess liquidity generated by the region's petrodollars has led to a sharp increase in speculation in asset prices around the region. We have already seen the bursting of the stock market bubble, which resulted in the Dubai financial market index losing over 65% from its peak a little over a year ago.

Finally, we have identified a fourth category of buyers - insurance buyers. There are indications that many buyers are actually buying a property in Dubai - which brings with it the right to reside in Dubai - in order to have somewhere to go should the situation deteriorate in their own countries. This buying, we believe, is particularly prevalent from South Asia, Russia and Iran.

Given these sources of demand, there is still currently a shortage of supply.

This demand-supply imbalance has led to a significant rise in valuations and rents. We have argued before that residential property prices are likely to come down around 20-30% in the next 2-3 years. And we believe that we are getting close to the peak in residential property prices. While demand is likely to remain strong in the coming years, as Dubai continues to focus on diversifying its economy away from oil, the key is supply.

The good news, for those who have had to stomach sharp increases in rents in recent years, is that supply is set to grow rapidly in 2007, outstripping demand growth. Prime Group has estimated that, taking into account delays in the delivery of properties, 52,000 and 63,000 properties will be delivered in 2007 and 2008, respectively. Given a reasonable assumption of 7% population growth for the emirate, it suggests this will lead to an excess supply of around 6,000 units in 2007 and 33,000 units in 2008. This is likely to mean that we will see property prices and rents falling in the coming 24 months.

There are scant signs of this happening in the immediate future. Our updated residential property market index suggests prices have risen an average 18.8% so far this year. However, what is extraordinary is the 12.9% jump we saw in October after weakness between July and September, when we saw prices fall over 1.0%. The data is fairly volatile (for notes on how the index is constructed, please see the Appendix). What is interesting is the fact that the overall property price index has fallen in five out of the last eight months, but two of the rises, in July and October, were dramatic. The first can be explained by the announcement by the government that foreigners would be able to buy freehold properties.

The jump in October may have come from a realisation that estimates for the release of properties reported for the second half of the year are unlikely to be attained. Indeed, one developer at one point suggested it would be releasing 60,000 units onto the market in the second half of 2006 and Prime Group now estimates the full year market figure will only be 40,000. There may also be a seasonal effect at play here.

We break down our property index by type (apartment and villa) and by geography. On the former, it is conventional wisdom that the villa segment is unlikely to be affected significantly by any downturn in the property market as most of the supply coming onto the market is in the apartment sector. Our property indices indicate that villas (up over 30% year-to-date) have indeed outperformed apartments (10%) by a significant margin. However, we continue to argue that the two segments are not totally isolated from each other. While a family may have a preference for living in a villa, should the relative pricing change significantly (as apartment prices fall, say) we would expect some to migrate to the apartment segment. That said, we do agree the apartment sector is likely to lead any weakness and this is reaffirmed by the fact that villa prices have risen over 20% in the past three months while apartments have risen by just over 3%.

In terms of geographies, we have highlighted three main areas: Offshore Dubai, New Dubai and South West Dubai (see Appendix for more details on the developments included). The best performing have been the most developed; that is, those that have more of the projects completed. South West Dubai prices have risen 34.1% year-to-date. This was by far the top performer. While part of this out-performance is due to the fact that 86% of this sub-index is made up of the outperforming villa segment, it is still worth noting that this district outperformed the overall villa index in the first ten months of the year.

New Dubai prices were up 23.7% over the course of the year, a very strong performance given that it is comprised of 76% of apartments. However, it is important to note that prices rose a whopping 31% in October and before this increase prices were down over 5% year-to-date. This huge volatility, together with the large supply due to come onstream in the coming months in the form of the Jumeirah Beach Residences, may suggest this is a last hurrah for this district.

Finally, Offshore Dubai, which includes the Palms, has seen prices remain relatively lacklustre so far, up a relatively meagre 3.3% year-to-date, all of which can be accounted for by the rise in October. Therefore, we expect property prices, particularly in New Dubai, to peak in the coming months.

However, we believe the impact on the economy will be limited for several reasons. First, we expect the property price correction to be gradual as the developers avoid releasing properties too quickly into a declining market. Second, the Abu Dhabi property market is heading in a different direction with a supply shortage likely to be seen well into 2008. Third, we expect oil prices to remain firm, ensuring that liquidity in the region remains ample. And fourth, the diversification and investment drive is likely to remain very strong. Therefore, while the property sector may start to weaken from here, we expect economic growth to remain firm.

The data used to build Standard Chartered Bank's residential property index is taken from betterhomes Property Listings magazine and the indices are are based on AED per sq foot. A note on the data This data is not a comprehensive data source of all Dubai properties. It focuses largely on the new buildings still under onstruction or recently completed. The three zones covered in depth are 1) Offshore Dubai (the Palms, the World and Maritime City), 2) New Dubai (Dubai Marina, Springs, Meadows, Gardens, Lakes, Jumeirah Islands etc) and 3) South West Dubai (Arabian Ranches, the Investment Park, Sports City, Green Community).

The composition of the properties changes from month to month, with some properties not being present for a few months and then returning. Therefore, there are two sources of changes in prices. First is the fact that different properties are covered from month to month. And second, the price of the properties can be revised, as perceived market conditions change. As an example of the breakdown of properties, the October index is based on 956 properties. Of these, 370 properties were new additions to the spreadsheet, 391 were updating September data and the remaining 195 were updates of previous monthly data.

It is also important to note that the prices are those at which the seller is offering the property to the market while the actual transacted prices may be very significant. There are two implications of this. First, it may increase the volatility of the data. Second, it may provide a delayed response to actual market conditions. Generally, when the market turns down in property markets, it takes some time for ellers to wake up to the fact that the cycle has turned and their perspective of market conditions is out of date. However, in the absence of a better methodology, we comfort ourselves with the fact that over time they should give us an nidication of where the market is heading.

Please note the May and August data were interpolated.

EFG Hermes points to 2008 as crunch time for Dubai realty

In 2008 some 139,000 units are due to be handed over. However, delivery dates in 2008 are even more likely to slip than in 2007. For in 2008 only 14 per cent of these units will be completed by large developers, compared with 75 per cent in 2007.

All the same this study highlights a fear prevalent in the local market that while the outlook for 2007 is sound enough, it looks as though supply and demand will be getting seriously out of kilter by 2008. Thus in 2008 EFG Hermes predicts that rents and prices will begin falling.

The exact extent of price falls in 2008 will depend on how much of this additional supply actually hits the market, note the authors. But they see an oversupply of units starting in 2008 when the bulk of current construction is due for delivery with the number of residential units doubling to 530,000 by 2010.

2007 a stable year
For 2007 this investment bank suggests that apartments are overpriced but that villas have not yet peaked in price. It points to the building of 10 apartments for every villa while the demand for villas remains high among families.

Without any historical precedent to guide to property cycles in Dubai, EFG Hermes turns to the last cycle in Singapore for a pointer to the future pattern. Singapore went through a boom in 1998-2000 with prices up 37 per cent and then a short period of stability before a sharp drop of 30 per cent.

This matches with EFG Hermes' main scenario for Dubai with a period of stability in 2007 followed by a cumulative 25-30 per cent fall in property values by 2010, albeit 'the range of potential price decline outcomes is very wide'.

EFG Hermes says that demand is the most difficult part of the supply and demand equation to work out. In short: whether or not Dubai can really absorb this huge supply of property over the next four years.

Economic conditions
The major caveat is that this analysis is predicated on there not being any significant slowdown in the economy which would weaken the flow of expatriates into Dubai. So if oil prices came unstuck in the forecast period the outlook would be very different.

On the other hand, instability in many regional countries and a continued high oil price would have the reverse effect, bringing more people, more money and higher housing demand.

For while it may look as though Dubai is building far too much real estate, the supply could still be too slow to keep up with a surge of demand under some scenarios, and who can really predict what is going to happen in the Middle East over the next four years? Analysts do not have an easy task.

Dubai rentals tripled during the past two years

According to reports by Asteco, a leading property consultancy, the rental rates in Dubai has almost tripled and has increased to an astounding Dh.270 to Dh.280 per square feet from Dh.90 to Dh.100 per square feet during the year 2005.

The commercial property sector in Dubai has witnessed major boost in office rents during the past few years, due to the high-demand generated by continuous influx of multinationals setting up their base in Dubai and the growth in existing businesses.

The Director -Research Valuation & Consultancy at Asteco has stated that this increase in commercial rents will continue until 2008, due to the delay in construction. But towards the year 2009, majority of new supplies will hit the market, thereby easing rental hikes.

The Asteco report reveals that rent on Shaikh Zayed Road has risen to Dh.350-Dh.375 per square foot, as against Dh.220-Dh.240 during 2006. Few other areas witnessing increased rentals are the Karama, and Bur Dhbai at Dh.265 and Dh.280 per square foot respectively. This reveals a corresponding increase of 51 and 24 percent respectively, over the rates of third quarter 2006.

The rents in Dubai apartments have increased by 25 percent from 2005 to 2006 and by 18 percent from 2006 to 2007.

Dubai rents to be capped by 5% in 2008

The Vice President and Prime Minister of UAE and Ruler of Dubai, H.H. Shekh Mohammad bin Rashid Al Maktoum, has issued a decree on 27th December 2007, lowering the annual rent cap in Dubai by 5% from the existing 7%, beginning 1st January, 2008. This rent cap would be implemented by the RERA (Real Estate Regulatory Authority) and the Dubai Land Department (DLD) in 2008.

This new rent cap would be applicable to new tenants, whose rents were not increased last year. However, for those tenants, who have had a rental increase in 2007, there will be no new increase.

At present, Ras Al Khaimah and Fujairah have both had a rent cap of 15%, while Abu Dhabi maintained 7% rent cap.

This move by the Dubai government has been much appreciated by the residents, realty developers and brokers, as strong demand and lack of adequate supply, had increased rents tremendously during recent past, which is a cause of concern among residents in Dubai.

The RERA Chief Executive, Marwan bin Ghalita, has warned that any increase beyond the proposed cap, is in violation of the rule, and in such a case, tenants should not agree to sign the contract.