Of all the markets which emerged onto the international property scene at the beginning of this century, none has proved more fascinating and more dynamic than that of Dubai . This small emirate at the south-eastern end of the Persian Gulf has been the focus of a construction and real estate boom without parallel in human experience: up from the dust of the desert have arisen some of earth's most spectacular building projects, including as of the end of July the world's tallest building (the unfinished Burj Dubai, soon to become the tallest structure of any kind ever built) along with countless other soaring towers and headline-hogging mega-developments. As Dubai's ruler and the prime mover behind its progress onto the world stage, Sheikh Mohammed, seeks to extend and concretise his vision of his emirate as a global financial, commercial and tourism hum, his domain has attracted many thousands of investors looking to hitch their fortunes to his ascendant star.
It is clear now that the extraordinary capital growth which characterised the early years of the property revolution can no longer be found in Dubai; more so perhaps than any other emerging market to hit the European buying consciousness, the emirate at the beginning of its boom offered the magic combination of affordability and rapid appreciation and those intrepid pioneers who entered the market at around the turn of the Millennium (long before foreign ownership in Dubai was even legalised) have now seen their assets grow, in many cases, up to tenfold. But as the boom took hold and rates of supply, even at the off-plan stage, spiralled upwards - and as the market began to find a modicum of equilibrium - growth began to decelerate from the jaw-droppingly frantic to the merely heady. While estimates vary, many observers put appreciation in the five years from the beginning of 2002 at 200 per cent - that is, prices tripled over that period. Now, while official figures are few and hard to come by, it seems growth has declined to a still-not-to-be-sniffed-at ten per cent annually.
Supply is the big issue here. While an estimated 100,000 people are moving to Dubai every year (a massive increase for an emirate whose total population remains substantially less than that of Birmingham) the rate of housebuilding has been set even higher in anticipation that this rate of increase will continue or even accelerate over the coming years. A study by agents and analysts Colliers International showed that supply in Dubai grew between 2002 and 2005 by 23,000 units, or 47 per cent of existing stock - but that by the end of the decade another 170,000 to 240,000 units will be completed. Clearly, for an increase of this extent to prove viable, population growth simply has to continue at its current precipitous rate or a good many investors will be left holding on, perhaps for several years, to empty and unprofitable properties.
Thus far things seem to be running smoothly. The Dubai economic master plan calls for sustained growth in pretty much every sector and so far that's exactly what we've seen; the establishment of various themed "cities" around Dubai has attracted innumerable large foreign firms with their staff, all of whom require accommodation, while Dubai's generous tax regime (the emirate imposes virtually no personal taxes) has seen many wealthy individuals establish themselves as residents. Furthermore, large-scale foreign acquisitions around the globe (such as the controversial purchase by Dubai Ports World of Britain's P&O and assorted port establishments) have not only helped establish Dubai as an economic player of global import but have necessitated the creation of still more employment in the emirate itself. While it's true that a natural catastrophe or, more likely, a degeneration of the geo-political situation centred on the Middle East could have devastating consequences for all Dubai, such worst-case thinking tends to be poo-pooed by most analysts; barring such extreme events, Dubai's economy looks set for continued growth over the next decade, hopefully ensuring a steady supply of long-term immigrants to support the growth in housing construction.
A good proportion of foreign workers in Dubai, of course, do not own their properties. Rentals in the emirate have been if anything even more dynamic than the property-purchasing sector; rents increased by at least 20 per cent annually each year of this decade until 2006 when Sheikh Mohammed imposed a 15 per cent limit on increases in an attempt to stabilise the increasingly runaway market. Even with prices for properties at their current levels, so much higher than they were pre-boom, letting homes in Dubai is a big and profitable business and it's this sector even more than the purchasing market that requires the expected steady stream of professional immigrants to sustain itself. It's not known what proportion of homes currently under construction are intended for use as rental properties but it is at any rate a very significant proportion, and the great concern over Dubai's market (enough for the Prestige Group to rate Dubai as "watch" rather than "buy" in its initial Global Property Index last year) is that when those 170,000-240,000 extra homes finally reach completion there won't be enough tenants to go round, thus creating a glut of homes for sale by worried investors which could then send the purchasing market itself into the doldrums. While most analysts expect the market to sustain itself through Dubai's economic growth, worries persist and it is now probably this factor, rather than previous issues over legal status, which is the biggest obstacle in the minds of many looking to invest in the emirate.
To a certain extent one area of the rental market could be immune even to a significant downturn in the long-term sector. Dubai's tourist industry is stratospheric at present: over seven million visitors annually with an official target of 15 million by the end of the decade. While the number of hotel rooms in the country is also shooting upwards (the world's largest hotel is planned in a new Las Vegas-style strip boasting nearly 30,000 new rooms) plenty of opportunities remain for short-term rental profits, particularly in tourist-friendly locations such as in and around the massive new Dubailand theme-park complex. With incredible new attractions, a growing number of golf courses, the possibility of the establishment of a Dubai Grand Prix as well as countless other large sporting events (there is even talk of an Olympic bid for 2020 or 2024), new operatic and theatrical facilities and an increasingly exciting fine-dining portfolio, Dubai is becoming a genuinely year-round destination and while short-term rentals will never be as big a sector as longer-term stays it is certainly not a business at which to turn up one's nose.
The bottom line - as it has been, really, since Dubai first poked its head up from the sands - is that there is a bucket-load of money to be made here but it involves placing one's faith in the Dubai project as a whole. If Sheikh Mohammed's grand scheme continues to unfold successfully, as it undeniably has so far, then the economy will continue to flourish and both short- and long-term occupiers will continue to flood into the country. If this is the case then we may see even the current projected housing inventory revealed as insufficient and prices will carry on soaring. If, on the other hand, the wheels come off the project, oversupply will be a crucial and possibly terminal factor. It is hard to imagine that this would be the case - Dubai today is a place where miracles, whether economic or engineering, take place on an almost daily basis - but it remains a real, if minute prospect, and the most cautious of investors will probably wish to wait and see how matters pan out. For everyone else, the boom keeps booming...