15 % Returns from the Dubai Real Estate Market

A report by Standard Chartered Bank forecasts a 15 per cent return in 2008 for investors in the real estate market in Dubai . Demand is far greater than supply and there are some concerns of the market overheating, however the report’s view is that the market is underpinned by very strong fundamentals and this applies to both residential and commercial properties.

In the commercial sector, occupancy rates are around 97 per cent to 99 per cent – among the highest in the world. The kind of growth the Business Bay area has witnessed remains unprecedented where the sales price per square foot has risen by 90 per cent in 2007. The market expects a significant rise in the supply of office space in the next 18 months to 36 months, which could ease price pressures, but the prices should not fall given the level of demand.

In the residential sector demand remains high compared with supply. Prices are expected to remain high on the back of higher-than-expected population growth, of 10 per cent and a fall in the number of properties coming on the market. The market is dominated by a small number of developers who pre-sell the properties before construction begins.

Current rental yields in Dubai are relatively high, between seven and more than 10 per cent depending on the size of the unit. This compares to less than three per cent in the West. The residential market is only witnessing low occupancy rates in those developments where investors prefer to keep their properties vacant in order to cash out in the near future rather than rent it out and be committed to an annual contract.