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Dubai’s Booming Property Market

Freemont Group
04 July, 2013

Do you remember how during the 2008 financial crisis Dubai suffered a hard landing?

It hit fast and it hit hard. The majority of companies suffered severe cuts. The airports were full of abandoned cars from people who dashed for the exits. The malls were empty.

Dubai needed a bailout from oil rich Abu Dhabi in order to finish the most prestigious projects.

Especially the real estate market imploded on a scale unseen before. Unfinished skyscrapers are still widespread throughout the city. Building sites were simply fenced and abandoned. The worldwide hyped islands of the “Dubai world” are currently gently being reclaimed by the eroding morning tide.

It had to come down. People were making profits by buying in the morning and selling in the afternoon. There are still some interesting documentaries on Youtube clearly demonstrating the collectively deluded “it can only go up” mentality of those days in Dubai that is so typical of bubble manias.

The Western mediaÂ’s reaction was one of Schadenfreude. The over ambitious city state with their reckless projects was taught a valuable lesson. Dubai was an example of capitalism run amuck. No matter that real estate values collapsed in many places across the world.

It all just had to lead toÂ…

A new start

Many businesses scaled down and many people lost their jobs. Many just left the country, often leaving their debts behind. Real estate prices dropped on average with around 50% over the course of 3 years, although some areas such as the Palm Jumeirah experienced a much smaller drop. But the economy got rid of all the excessive leverage and unrealistic projections.

After a three year decline, real estate prices have started increasing in the beginning of 2012. Investors and immigrants all are again finding the place, improving their lives and looking for opportunities. Tourism increase was only stalled in 2008, but has been steadily increasing ever since. (Department of Tourism and Commerce Marketing).

The last year, some of the prices have gone up significantly, with advertised prices for studios and 1 bedroom apartments here in JLT Free Zone going up 20 to 25%.

Another boom?

While Dubai real estate has not reached 2008 highs by far, price increases like the one described show that the way up has been found. It is indicative of the high level of confidence in the economy generally.

Dubai remains an oasis of stability in a very unstable region of the world. With current inflow from the Arab spring countries and investors from India and the West looking for better (tax free) yields than what they get at home.

With Dubai being the major contender hosting the 2020 Expo, Dubai will again experience exposure to international investors. It is expected to have a stimulating affect on the real estate market.

Investing in Dubai real estate

When you are thinking about investing in Dubai real estate there are some considerations.

The areas where you can invest as a foreigner are specially designated freehold areas. Here, you can have full ownership since 2001. When foreign property ownership was made possible it jumpstarted economic growth.

There are different building projects, appealing to different markets. But the quality of the properties and their management differs too. All in all, the advantages and disadvantages are not always so readily apparent for a non-resident investor.

Popular at the moment are the areas in what is considered new Dubai, like JLT and Dubai Marina and the downtown area around Burj Khalifa.

Real estate is subject to local inheritance law. Unless other arrangements have been made, sharia law will be applied. A straightforward way to ensure that the property ends up with the desired heirs it so hold the shares through a Jebal Ali Offshore Company, in turn the shares of this company can then be held (indirectly) by a trust.

This will insure that real estate is transferred without delay and without having to go through probate in the local courts.

Conclusion

The young and ambitious Dubai property market will likely show significant mood swings before maturating into a reliable and low risk part of the investment portfolio. But it is back on its feet after being in the doldrums for a few years.

Investor confidence in the economy is strong. The prices in Dubai are a fraction of what they are in other investor friendly city states like Hong Kong and Singapore, or for that matter, the not so investor friendly, but still popular London.

Where it will go and whether it is another bubble, your guess is as good as ours, but all the newly printed currency in the last few years have to go somewhere, and DubaiÂ’s property seems a good contender.


Tags: Dubai | Offshore


About the Author


Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com

 

 

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