United Arab Emirates: 20/05/2006

Summer lull begins for Dubai real estate, autumn is a test

For the past two years Emaar Properties has sponsored this independently written column analyzing the Dubai property market, and many a wag has suggested that with any sign of a market downturn this column would disappear. Yet the Dubai property scene is flourishing.

The summer slowdown in the Dubai real estate sector has arrived though agents report a continued improvement in sales in the wake of the Dubai Property Law. However, the summer months are always quieter as residents head for holidays overseas, and we will have to wait for the autumn to determine the true health of the market.

Those who have long predicted the imminent demise of Dubai real estate face another hot summer calculating the capital gain that they might have made in buying property and adding up the rent that they have paid in the meantime.

It has to be admitted that if you predict a downturn for long enough then one day you will be vindicated. But this really fails to understand the nature of property investment for the average person. This is not like buying stocks and shares.

Long-term investment

A house or apartment is something that you live in or rent out. Typically this is done with long-term finance called a mortgage or its Islamic equivalent. Now this finance will be over a period of 10 or 15 or even 25 years, and the chance of a real estate crash at some point during this period is very high.

But so what? For a crash is only a problem if you happen to want to sell the property at that time, otherwise you just carry on paying the mortgage and at the end of the finance period you live rent and mortgage free. This is why homes are a good investment. They act as a savings policy for money that would otherwise be wasted in rent.

Does it really matter what Dubai real estate prices do over the next year, three years or even five years, if the alternative was to be paying rent? Not much - and you would still have to pay rent while awaiting your 'ideal' buying opportunity, assuming that it ever came.

Investment option

Cash investors - buying for the current high rental yields on Dubai property - can also take a similar long-term view. Why not just carry on picking up very good rents for a few years while capital values yo-yo and still have an asset that will ultimately at least rise in line with inflation?

Highly leveraged property investors have more to worry about but not if they buy with high rental yields likely to offset any increase in finance costs, and in the locations that will always be in demand.

For property is the investment for everyman - and while it is certainly not true that everyone wins, an awful lot more people win by investing in property than anything else. How many people do you know who have made good money in property compared to other investments?