Understanding The Dubai Property Market

Dubai is situated on the shores of the Persian Gulf and one of the seven emirates that make up the United Arab Emirates

For many investors and observers alike, the lucrative Dubai property market has been rather difficult to understand. Failure to understand any market means that it becomes impossible to predict what the future may hold, making investment decisions very difficult to make with any certainty.

Probably the most important factor to take into consideration when trying to get to know the Dubai property market better, is that it is far from being a mature market where the laws of supply and demand can rule unhindered.  Despite the size of its economy, Dubai is in fact a very young market that has enjoyed rapid foreign investment and unprecedented growth over the last two decades or so. The lucrative international property market in Dubai has been around for an even shorter time.

This would partly explain a couple of things that may currently seem a little odd in this market. For example, despite the widely accepted over-supply situation, coupled with declining investor demand, rental rates continue to head north, climbing rapidly. This year alone rents have increased by as much as 50 per cent.

At least the reaction of the market to high, continued rental increases has been a little more predictable and understandable. The situation on the ground now, is that many end users are these days opting to buy property rather than rent it.

It is difficult to tell whether the decision by end users to buy rather than rent is a wise one in Dubai today. More so when signs are pointing to this market maturing and finally starting to respond to the laws of supply and demand in the marketplace, which should bring prices down or at least halt their rapid ascent. The rules for investors and property developers are naturally very different from those that govern end users buying property to live in.

This is the reason why Dubai remains a highly attractive destination for property and related investments and new investors continue to find their way into this market in large numbers every day.

Why Demand For Villas In Dubai Has Gone Through The Roof

In the past, because villas have been costing less than units in high-rise apartment buildings. Apartments have been in plenty because the investment in high rise property has been phenomenal in Dubai up until recently.

This is odd because the world over, villas usually cost substantially more than apartments for the simple reason that when considering the former, the value of the land on which it is built is factored in, guaranteeing a higher value for villas than for apartment units virtually anywhere. One of the explanations for this strange state of affairs in Dubai has been that villas cost less to build than apartments. This still does not make sense because property values are usually not pegged entirely on construction costs.

Now there seems to be a subtle change in the situation and circumstances in the rapidly maturing Dubai property market. To start with, sales of new units - both apartments and villas, have slowed down considerably, mainly because of long delays in construction. The completion of new property construction has therefore slowed, partly due to the fact that the Dubai economy is growing at a breakneck speed and thus putting a lot of pressure on the construction industry.

One of the immediate effects of this is that it has caused the property market to shift its focus to existing property already in the market, rather than property that is under construction. This in turn seems to have drawn the attention of the market to the fact that villas are in high demand and yet in very short supply. This has driven the prices high and seems to have corrected the anomaly in this property market.

Still there has been no real effort so far to increase the number of available villas in Dubai and even if there were, the construction industry which is currently under a lot of pressure to complete projects, would be limited in its ability to deliver quickly.

The result is that the market has been growing steadily as the supply of villas continues to diminish because there are hardly any new ones whose construction is being completed.