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22: Dubai - any good for investment?


01-25-2005

PropertyInvesting.net

This special report gives some objective views on property investment in Dubai, with a historical perspective on the sultanate’s development, plus views on future prospects.

Until the late 1960s, Dubai was a quiet fishing village on the southern edge of the Arabian Gulf – fronting onto the desert of the Arabian Peninsula. The area grew up to be the main industrial and commercial centre of the United Arab Emirates (UAE). Wealthy citizens in Abu Dhabi about an hours drive to the west invested their money – much of it from oil revenues - into diversifying the UAE economy and developing Dubai as a commercial hub. Jebal Ali to the west sprung up as an important port and service centre for the oil business.

The city at one stage, some 20 years ago, vied with Bahrain and Muscat to be the centre of airline traffic and commerce in the Middle East – things tipped Dubai’s way some ten years ago as the city made advances to attract international investment and expanded the airport.

Last year, Dubai had 7.5 million visitors a year – in the next five years Dubai’s aim is to have 15 million visitors. The hotels are already pretty full – so you can image the amount of development needed to cater for such an increase in tourism.

So what are Dubai’s attractions? The city:

·        has year round sunny weather – temperatures in the winter drop to 12-15 deg Centigrade at their coldest and rise to over 45 deg Centigrade at their warmest.

·        has a stable economy and has a very low crime rate – and is considered a secure place to visit.

·        is cosmopolitan with diverse mix of people – making for a vibrant social and cultural environment.

·        is booming – with new internet, telecom and banking sectors all expanding – the city is now considered the regional centre for the Middle East in most businesses.

·        has an expanding economy with many exciting job opportunities.

·        is well known for it’s gold trade and shopping experiences.

·        is truly innovative – with Palm developments, Internet City, fairs and other attractions that help to bolster the cities unique reputation. The city has a “can-do” attitude

·        has frequent flights to Europe, south Asia, Far East and other destinations make Dubai a popular stop-over and airline hub – many cheap direct flights are available.

·        has no income tax, and generally very low levels of over taxes – this helps make property investment attractive.

·        Property is currently low cost and there are plenty of new developments to choose from.

·        Amenities are superb – with towering new hotels, shops, water sports, boating, beaches, and inland desert trails to explore.

·        The desert mountains of Oman are close by – ideal for 4x4 off-road adventure and camping.

What are the key investment risks?

·        Sustainable security – both specific to Dubai and regionally. If tensions increase, less people travel to Dubai and economic growth is not as strong.

·        Oversupply of new apartments and houses might lead to rental yields dropping and prices stagnating – there is currently little or no sign of this since demand is so strong.

·        The oil price crashes affecting the regional economy. However, Dubai is now mainly a banking/commerce and tourist centre, so might not be impacted too much by changes in the oil price. Most analysts also believe oil prices will stay high – over $35/bbl - for a prolonged period.

Capital prices in Dubai have sky-rocketed in the past few years – hitting 50% per annum recently. Whether this is maintained is debatable. One thing to bear in mind is that many of the visitors are from India – which has a strongly growing economy (7-8% GDP per annum). As the number of wealthy Indians increase, many will want holiday homes in Dubai where they can benefit from the beaches, shopping, amenities, services, jobs and low tax environment. If oil prices stay high, and India does well along with Middle East security improvements – Dubai property prices should continue to rise strongly.

So what type of properties make the best investment?

For the highest rental yields, PropertyInvesting.net’s advice to most investors is to purchase good quality second hand property close as close to the city centre and beaches as possible – but at a reasonable price. You need to make sure the rental demand is good – either for holiday lets, or better still, permanent rentals. You might purchase a 1-2 bedroom apartment for £50,000 and town house staring from say £120,000. Rental yields of over 10% can be achieved.

Buying off-plan can be attractive – but remember the developer will be making a sizable portion of the profit, and you might end up with a flood of similar properties to be rented out at a similar time. Because new build properties are more expensive and rentals are proportionally less, the yields will be lower.

Very wealthy investors who can handle more risk might consider investing in The World development, a unique development of new islands in the Gulf - which are shaped like the countries of the world.

A good process to follow is to fly to Dubai and meet some local real estate agents. Best to get a good reference or two from people that have already bought of them – for piece of mind. Many agents have a local, and an English speaking representative, plus a German / French speaking representative. Most people in Dubai speak Arabic and English.

Areas that are being re-generated close to new large and expensive developments are particularly attractive – in essence – rubbing shoulders with expensive neighbours will always help.

Finally, make sure you consider the currency risk. You might consider borrowing in Euro, Sterling or US$ to hedge against this risk, depending on your nationality.

For some examples of Dubai property investment (note: not sponsored by PrpertyInvesting.net) check out this news article on Dubai. plus an article on The World development.

 

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