Tom Heath

The Rising Cost of Dubai Properties

There’s no doubt about it - Dubai is hot. It’s attracted a lot of attention in the last several years, becoming a symbol of wealth, luxury, and innovation. Tourists, and those seeking to relocate, have been flocking there in droves, which led to rapid growth and rapid increase of property values and prices.

Yet, when something seems too good to be true, it usually is. Even Dubai, which saw a 79% increase in property price since January 2007, is now facing a bit of a housing slump. In fact, one source predicts that property prices will fall by 10% by 2010. Overall, though, that’s still a gain of nearly 70% in just three years! That’s an incredible increase by any standards.

So what drives this increase in price? Several things: good old supply-and-demand, greed, and escalating costs of construction. Similar to other places in the world, the high prices of gasoline and oil (originally a boon to Dubai) are now being felt more deeply as products they need are increasing due to those same high oil prices.

Supply-and-demand has affected property prices because of that same skyrocketing interest in Dubai mentioned earlier. It has gained so much attention in the last several years that even they underestimated how many people would want to invest in their real estate—which only became available to foreigners in 2002.

Knowing that the demand is high for their work, some contractors and others with low integrity are being greedy and inflating prices, trying to make the most off the Dubai property boom. Unfortunately, those who are greedy are also short-sighted. If they get away with these inflated prices now, they’re only working themselves out of business sooner. Others, less greedy but who can provide excellent work, will do well to under-bid their greedy counterparts and get the jobs.

Some protective measures are now being taken in Dubai, thanks to these rising property costs. Some buyers are being asked to hold on to their properties for a set period of time before trying to sell them again. This will hopefully bring some stability to Dubai and not merely make it an investment flip market for owners.

Some believe oversupply in Dubai will occur sometime in 2009, which will help fuel the predicted 10% price fall by 2010. It is hoped that no matter what occurs, Dubai will not encounter a massive hit such as Singapore did in the 1990s.

For now, many investors in Dubai property remain optimistic and confident. They were able to build up a bit of a profit nest egg and some security before things started to shift. They don’t have as much construction to worry about and some of their properties are leased out or otherwise bringing in income, if not yet profit.

Dubai continues to have great attractions for tourists and others wishing to see its man-made and natural Middle Eastern splendors. Dubai would do well to take advantage of its mystique now, and attract more events to it, and continue to generate interest. Perhaps they should also spend some time getting to know what happened in Singapore before the bottom fell out from them!

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