In a scene remarkably reminiscent of the first
releases of villas in Dubai six years ago, 400 would-be villa owners
were patiently queuing by 9am last Saturday to buy a release of 180
villas in The Lakes and Arabian Ranches, even though some of these
properties will not be ready until later next year.
Meanwhile, the number of secondary market villas available for purchase
at Emaar Properties’ fully-completed Meadows planned community has
dropped to zero on the property location website Albabworld.com. It looks as though villas have become scarce while demand is soaring.
Even in the Arabian Ranches, never the most popular location, secondary
property listings have fallen from around 80 a year ago to just 18. But
even apartments in the best locations are hard to find.
Flats in the well located Greens apartments near to the Dubai
Internet City used to be readily available 12 months ago, today only
six units are listed on Albabworld.com.
Buyers galore
Local consumer surveys consistently show that
around 30 per cent of respondents are planning to buy property, a
remarkably high proportion of the population considering that many
residents in Dubai are transient workers and salaries beneath the
executive level are generally too low to service a mortgage.
Very high local rents are probably the reason for this enthusiasm
for buying property – which is now cheaper than renting. Plus local
residents are keen to join in the capital appreciation bandwagon that
they can see all around them.
It is also fair to say that Dubai is now attracting many more
affluent white-collar workers to its financial and other service sector
free zones, and that these individuals often have had a good experience
of home ownership in their own countries. Buying in Dubai does not
appear such a novel idea, as it sometimes still does to a dwindling
band of long term expatriates.
The local peg to the US dollar also provides a further reason to
invest at this time. And it still comes as a revelation to some foreign
buyers to learn that
UAE interest rates are effectively set by the US Federal Reserve.
Negative interest rates
Therefore, despite the booming
UAE
economy highly inflationary low interest rates are being inflicted on
the economy. And everybody knows what low interest rates and high
inflation mean for property prices: they go up thanks to negative real
interest rates. The same thing is happening in Hong Kong right now.
On the supply side, people used to worry about their being a
possible oversupply of real estate in Dubai. But from the experience of
the last weekend we can again see that this simply is not true: there
is not enough property to meet demand.
In 2007 on some local estimates around 25,000 units were added to
the local property pool. Whatever the big plans and visions the reality
on the ground is that not enough is being built. Perhaps too much is
being attempted at once, thus nothing is being completed on time.
It matters not much in the short to medium term. The queues can
only get longer, and the upward pressure on prices has never been
stronger than this, not even in the early days.
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