I wouldn’t put a penny of my money into Dubai, says Stuart Law of investment property firm Assetz in The Independent. “It’s a city based on consumerism. I’m not sure that guarantees its role as a long-term holiday home location. I wouldn’t buy there.” Several property developers and agents in the region have now begun echoing Law’s opinion. Dubai’s sustainability as a resort isn’t the only worry though, as there is also concern that the supply of property in Dubai has begun to outstrip demand.
Dubai property: buying could be easier than selling
“Thirty years ago there was nothing in Dubai but a creek, a sheikh’s palace and a dodgy reputation as the smuggling capital of the Arabian Gulf,” says The Economist. Since then it has been billing itself as the tourism and business hub of the Gulf region and people have flocked there with their money. Property prices have soared in tandem with the frenzy, but it now seems that it has reached a peak. Since 2003 alone more than 12,000 homes have been built, says Graham Norwood in The Independent, meaning “that anyone wishing to sell a home has competition from new properties”.
According to a spokesperson for Standard Chartered Bank, also in The Independent, “development of the Palms, Dubai Marina, Business Bay and Arabian Ranches, to name just a few [schemes], is going to boost supply in the coming five years in dramatic fashion. To us, this suggests that a decline in property prices is just a matter of time.”
Kevin Fleury, a mortgage broker specialising in overseas loans at Conti Financial Services, agrees. He tells The Times that when investing in property abroad, an exit strategy is needed. With Dubai, though, there isn’t one. “There is a severe danger that there will be an oversupply because so much is being built. This will suppress rents and capital growth, and I think many people will find it difficult to sell.”
Even when it comes to selling a home, the vendor will face additional problems. Dubai may well have just granted the right to own freehold properties to expatriates, but “there is no conveyancing system for property purchases”, says Gill Kerby in The Sunday Times. “The developers and agents offer to undertake all contract exchanges on your behalf (not a good idea).”
Dubai property: is the infrastructure all it’s cracked up to be?
And an oversupply of houses isn’t the only problem facing investors. The Dubai tourism board may well issue sprightly images of superhighways traversing the emirate city’s centre, but as the construction of one of it’s latest property developments demonstrates, infrastructural issues do not seem to have been factored in. “Palm Jumeirah is a peninsula, with one way in and out,” says William Kistler, European President of the Urban Land Institute. He tells The Daily Telegraph that “the question of how the road provision is going to connect into the transit infrastructure is something that we have got a not very satisfactory answer to”.
Palm Jumeirah came to prominence back in 2002, when David Beckham and several other members of the England football team bought properties on the palm-shaped island on their way to the 2002 World Cup in Japan. The subsequent hype helped it to sell out, but its developers have remained tight lipped on allegations that the players received large discounts to buy there. 25% of the properties went to British buyers.
The only road from the resort (down the palm’s trunk) leads directly to Dubai’s main highway, the Sheikh Zayed Road, where traffic “moves as slowly as water down a blocked drain”, says Kistler. People were wondering whether the infrastructure was sustainable even before they built the Palm Jumeirah. Although two new road projects are planned for the area, so too are 100 residential towers, accommodating up to 40,000 people.
The reason for the extra towers seems to be that Nakheel, the property development company owned by the Dubai government, grossly underestimated the number of properties that would be built on the palm-shaped idyll, says The Daily Telegraph. The result makes scary reading. According to a former construction worker for the company, the current plan has 150,000 people living there, “but there are no medical facilities and no evacuation plan in place”.
Dubai property: a bubble waiting to burst?
There is also another reason to be cautious when it comes to Dubai property – the boom in prices is a bubble waiting to burst, fed principally by speculative purchases.
Sure, Dubai enjoys year-round sunshine and indoor skiing, but what promoters of the tiny emirate “don’t emphasise is that Dubai will be the world’s biggest construction site and traffic jam until at least 2010”, says Kerby.
Late in 2004, Middle East Business media reported that 85% of off-plan flats and 50% of off-plan villas were bought by speculators, most of whom sell before completion. This means that most homes are secured by “10% deposits and then traded like shares”, says Graham Norwood in The Observer. In other words, the majority of those buying have no intention of living there.
Some Dubai builders already recognise the “fragility of this speculative frenzy”, says Norwood, but may be too late in looking for larger deposits. “A global economic downturn or a local housing crash, or both, could turn this investment-led boom into a major slump.”