Several property agents in Dubai predict a bright property market, with the sector expected to pick-up within next six months.
The CEO of Dubai Properties, Mohammed Binbrek, said that the current issue is more due to public sentiment, than due to liquidity or resource availability. Once the fears and concerns of the people are addressed, the business would return to normal.
The same optimism was seen among the respondents of a survey, involving 170 Dubai-based property agents, out of which 77 percent felt that the issues currently plaguing the Dubai real estate sector would vanish in six months time.
Pointing out to other markets, the Managing Director of Better Homes, Ryan Mahoney, said that the markets had a slow phase for a couple of months, and then improved in terms of transactions, depending on the availability of financial lending.
But Mahoney predicts that although the transactions may not rise to previous levels within next six months, the prices would stop falling, and then grow again, which may take about a year.
Showing posts with label dubai market. Show all posts
Showing posts with label dubai market. Show all posts
Friday, 21 November 2008
Sunday, 30 March 2008
Gulf Projects touch 2 trillon Dollar - Meed
The MEED Projects index estimated that Gulf has reached a staggering $2 trillion worth of projects. The UAE remains the biggest projects market in the Gulf, accounting for 37% of the total project value. It has also registered the highest growth, with total project values in the federation rising by 46% over the past 12 months. Kuwait has the highest proportion of unawarded contracts, representing over 90% of all projects planned.
Only a quarter of all projects tracked by MEED Projects are actually construction implying that there is another 3-5 years of further intensive construction activity to come.
There have been a series of major real estate projects announced in recent months, reinforcing the sector's dominance of the projects market and pushing the overall value beyond $2 trillion. Major new real estate projects include; Sudair Industrial City in Saudi Arabia at $40bn, Masdar City, Abu Dhabi - $22bn, Dilmunia mixed use development in Bahrain worth $4.2bn and Limitless’ Al-Wasl development in Riyadh at $12bn.
MEED Projects current value of investment in the Gulf by sector:
1. Construction = $1,207 billion
2. Industry = $70 billion
3. Oil & Gas = $430 billion
4. Petrochemicals = $135 billion
5. Power = $134 billion
6. Water & Waste = $40 billion
Only a quarter of all projects tracked by MEED Projects are actually construction implying that there is another 3-5 years of further intensive construction activity to come.
There have been a series of major real estate projects announced in recent months, reinforcing the sector's dominance of the projects market and pushing the overall value beyond $2 trillion. Major new real estate projects include; Sudair Industrial City in Saudi Arabia at $40bn, Masdar City, Abu Dhabi - $22bn, Dilmunia mixed use development in Bahrain worth $4.2bn and Limitless’ Al-Wasl development in Riyadh at $12bn.
MEED Projects current value of investment in the Gulf by sector:
1. Construction = $1,207 billion
2. Industry = $70 billion
3. Oil & Gas = $430 billion
4. Petrochemicals = $135 billion
5. Power = $134 billion
6. Water & Waste = $40 billion
Tuesday, 19 February 2008
Dubai Property Delays
Dubai: Property prices have quadrupled in Gulf Arab countries due to surging demand for housing and office space created by economic growth and windfall revenues from a 5-fold increase in oil prices since 2002. Dubai, the Gulf commercial hub, has already set an annual rent cap of 5% for 2008, tighter than last year's 7% cap and the 15% ceiling of 2006.
Jones Lang LaSalle expects a supply surplus in Dubai between 2010 and 2012. This adjusts the global real estate investor's previous forecast that supply would surpass demand between 2007 and 2009.
Real estate prices and rents in the Gulf Arab region, especially Dubai are most likely to rise by up to 20% in 2008, due to higher labor and construction costs and delivery delays, says market analyst, Jones Lang LaSalle.
Blair Hagkull, Regional Managing Director, Jones Lang LaSalle in Dubai, said, "With the delays in delivery, the specter of huge supply continues to be delayed and you see greater demand... there will also be an increase in labor and construction costs and land prices".
Of 57,000 residential units expected in Dubai in 2007, less than 20% were delivered by September, Cairo-based investment bank EFG-Hermes said in a report that month. It said then it expected a rise of 5-10% in property prices in 2008.
Jones Lang LaSalle expects a supply surplus in Dubai between 2010 and 2012. This adjusts the global real estate investor's previous forecast that supply would surpass demand between 2007 and 2009.
Real estate prices and rents in the Gulf Arab region, especially Dubai are most likely to rise by up to 20% in 2008, due to higher labor and construction costs and delivery delays, says market analyst, Jones Lang LaSalle.
Blair Hagkull, Regional Managing Director, Jones Lang LaSalle in Dubai, said, "With the delays in delivery, the specter of huge supply continues to be delayed and you see greater demand... there will also be an increase in labor and construction costs and land prices".
Of 57,000 residential units expected in Dubai in 2007, less than 20% were delivered by September, Cairo-based investment bank EFG-Hermes said in a report that month. It said then it expected a rise of 5-10% in property prices in 2008.
Tuesday, 29 January 2008
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.
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.
Saturday, 19 January 2008
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.
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.
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.
Monday, 17 December 2007
Office Rents in Dubai, Doha to surge by 20%
The office rents in Dubai, and Doha are likely to go up by 20% next year, as the demand surpasses supply, and due to the expansion of international business in the Gulf region, revealed the property services company, CB Richard Ellis.
"The top-quality offices in Dubai, cost as much as Dh.500 per square foot, and this in-turn could increase prices to Dh.600 per square feet next year, which would continue for 18 months, and thereafter the prices may probably halve to about Dh.300 per square foot in another five or six years with an increase in market supply" says Nicholas Maclean, the Managing Director, CB Richard Ellis.
However, at present, there are not enough supplies reaching the market, which would do no good to the businesses or for the government.
As far as Doha property is concerned, the demand is increasing, with an expansion in oil and gas companies, and the government is seeking new space. Although, the prices in Doha are lower than that in Dubai, the trends are the same.
On the other hand cities in India, Egypt, and Philippines are gaining advantage from the rising prices, as businesses turn to them for back-office operations, said Maclean.
The office space in Dubai is likely to more than triple touching 100 million square feet, as against the present 30million, during the next five to six years, Maclean concluded.
"The top-quality offices in Dubai, cost as much as Dh.500 per square foot, and this in-turn could increase prices to Dh.600 per square feet next year, which would continue for 18 months, and thereafter the prices may probably halve to about Dh.300 per square foot in another five or six years with an increase in market supply" says Nicholas Maclean, the Managing Director, CB Richard Ellis.
However, at present, there are not enough supplies reaching the market, which would do no good to the businesses or for the government.
As far as Doha property is concerned, the demand is increasing, with an expansion in oil and gas companies, and the government is seeking new space. Although, the prices in Doha are lower than that in Dubai, the trends are the same.
On the other hand cities in India, Egypt, and Philippines are gaining advantage from the rising prices, as businesses turn to them for back-office operations, said Maclean.
The office space in Dubai is likely to more than triple touching 100 million square feet, as against the present 30million, during the next five to six years, Maclean concluded.
Monday, 10 December 2007
Dubai Real Estate Corporation chalks out plans for further strengthening Dubai real estate sector
Dubai Real Estate Corporation (DREC) has begun operations towards development of Dubai real estate sector, so as to fill in the niche market gaps and boost urban growth of Dubai. DREC was recently established following a verdict by H.H. Sheikh Mohammad bin Rashid Al Maktoum, the Vice President and Prime Minister of UAE and Ruler of Dubai.
DREC is a full-solution real estate company, responsible for offering various value-added services, such as leasing and facility management services, real estate management services, and asset management consultancies, for properties that are registered in the name of Dubai Government or any of its departments. Even investments within the entertainment, hospitality and leisure sectors are all based on DREC's operations, and the company has confirmed its plan to develop these specific areas in future.
The Chief Executive Officer of DREC, Hisham Al Qassim, says "DREC has been established to further strengthen the real estate assets in Dubai, and we intend to accomplish this by concentrating on major areas, targeting niche market gaps, and complementing the urban growth by focusing the underdeveloped areas. We are planning a country-wide expansion in the near future, and hope to play a major role in the next chapter of UAE's development."
Currently, DREC is carrying on preliminary studies on the Dubai property sector, and the results will indicate the key areas for development, depending on market demand and growth potential. The company has revealed its intentions to begin operations by focusing on prime areas, while also maintaining strong market in commercial, residential, industrial, and tourism sectors.
DREC is a full-solution real estate company, responsible for offering various value-added services, such as leasing and facility management services, real estate management services, and asset management consultancies, for properties that are registered in the name of Dubai Government or any of its departments. Even investments within the entertainment, hospitality and leisure sectors are all based on DREC's operations, and the company has confirmed its plan to develop these specific areas in future.
The Chief Executive Officer of DREC, Hisham Al Qassim, says "DREC has been established to further strengthen the real estate assets in Dubai, and we intend to accomplish this by concentrating on major areas, targeting niche market gaps, and complementing the urban growth by focusing the underdeveloped areas. We are planning a country-wide expansion in the near future, and hope to play a major role in the next chapter of UAE's development."
Currently, DREC is carrying on preliminary studies on the Dubai property sector, and the results will indicate the key areas for development, depending on market demand and growth potential. The company has revealed its intentions to begin operations by focusing on prime areas, while also maintaining strong market in commercial, residential, industrial, and tourism sectors.
Saturday, 8 December 2007
Buy a home in Dubai and beat local inflation
Inflation is surging in the UAE. Food, maids, dry-cleaning, restaurants, petrol and particularly rents - everybody who lives here knows that costs are rising dramatically. Does buying a property offer some protection against the relentless daily increases in the cost-of-living? Yes is the short answer.
Actually, in an inflating economy it makes sense to buy almost anything today, and pay tomorrow. And it is the same with a home, which is the biggest item of expenditure in most budgets.
To take an extreme example, look at what has happened to those who bought in Dubai with a mortgage three years ago. The value of that home may have doubled or tripled, but the debt has fallen a little with repayments, while the monthly cost of the mortgage will have remained relatively unchanged.
Readers who pay rent will hardly need reminding that their fate has been very different. Unfortunately, they should also appreciate that the likely future scenario is worse and not better.
No cap on rents
Already we are hearing that a voluntary rent cap is proposed for 2008, and while it would be nice to think that generous landlords will take this opportunity to cut rents, economic experience suggests rents will go higher. The supply of completed new property is also just not enough to keep up with demand.
What happens next is that staff will ask their employers for higher salaries, and if they are not given a raise then they will move on to another employer that is prepared to pay more.
This is known as an inflationary wage-price spiral; salaries go up which allows people to afford higher rents, which then rise again and people demand still higher salaries that are then taken up by higher rents, or so on.
This type of inflation is hard to correct once it becomes embedded in a booming economy, and only a severe downturn can flush it out. In the meantime, those who bought houses get a better and better deal in relation to those who rent.
For as inflation continues the house buyer will see mortgage payments reducing as a proportion of their salary and the capital value of their home going up.
Downside thoughts
Of course, what will break this happy situation for the home buyer is either a major economic downturn, or an increase in the supply of property above the level of demand.
However, the renter of property will still have to pay the rent in a downturn, and will not be accumulating any savings in the equity of their property as the debt is discharged. Besides property markets have a habit of swinging back up again, and any distress is likely to be a passing phenomenon.
Finally, if the UAE keeps its currency pegged to the US dollar then buying is a no-brainer as interest rates on mortgages are likely to go much lower, and the cost advantage in comparison to renting will be very obvious; and that will also likely inflate house prices much further.
Actually, in an inflating economy it makes sense to buy almost anything today, and pay tomorrow. And it is the same with a home, which is the biggest item of expenditure in most budgets.
To take an extreme example, look at what has happened to those who bought in Dubai with a mortgage three years ago. The value of that home may have doubled or tripled, but the debt has fallen a little with repayments, while the monthly cost of the mortgage will have remained relatively unchanged.
Readers who pay rent will hardly need reminding that their fate has been very different. Unfortunately, they should also appreciate that the likely future scenario is worse and not better.
No cap on rents
Already we are hearing that a voluntary rent cap is proposed for 2008, and while it would be nice to think that generous landlords will take this opportunity to cut rents, economic experience suggests rents will go higher. The supply of completed new property is also just not enough to keep up with demand.
What happens next is that staff will ask their employers for higher salaries, and if they are not given a raise then they will move on to another employer that is prepared to pay more.
This is known as an inflationary wage-price spiral; salaries go up which allows people to afford higher rents, which then rise again and people demand still higher salaries that are then taken up by higher rents, or so on.
This type of inflation is hard to correct once it becomes embedded in a booming economy, and only a severe downturn can flush it out. In the meantime, those who bought houses get a better and better deal in relation to those who rent.
For as inflation continues the house buyer will see mortgage payments reducing as a proportion of their salary and the capital value of their home going up.
Downside thoughts
Of course, what will break this happy situation for the home buyer is either a major economic downturn, or an increase in the supply of property above the level of demand.
However, the renter of property will still have to pay the rent in a downturn, and will not be accumulating any savings in the equity of their property as the debt is discharged. Besides property markets have a habit of swinging back up again, and any distress is likely to be a passing phenomenon.
Finally, if the UAE keeps its currency pegged to the US dollar then buying is a no-brainer as interest rates on mortgages are likely to go much lower, and the cost advantage in comparison to renting will be very obvious; and that will also likely inflate house prices much further.
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