Dubai real estate a new Trump card
Donald Trump may be counting his losses in New York. But in Dubai the sale of a penthouse in the Trump International Hotel and Tower for $3,000 (Dh11,019) per square foot this week brought a predictably quiet and understated reaction from the reclusive billionaire.
"My project with Nakheel will be one of the most impressive undertakings that I have ever been a part of," he said. "I am thrilled with the early sales of the residences."
Unless you have been living cut off from the outside world you may have heard that Dubai has a property boom, and with the Middle East benefiting from record oil prices to the tune of $500 billion a year, this boom is getting stronger and not weakening with the global economic slowdown.
The startling statistics from Colliers International showing Dubai house prices rising by 78 per cent in the year to the end of the first quarter raise an obvious question. Why are Dubai house prices increasing at this near exponential rate when in the rest of the world real estate markets are crashing? And how much longer can this rate of increase continue?
House price increases since Colliers International completed its field work suggest that this very high rate of growth in prices has been sustained into the early summer. The usual seasonal pattern is for a lull, particularly in July and August when many people are on vacation, and for a sharp pick up in prices in September.
The Dubai real estate market has been gaining momentum, with some quiet periods usually over the summer, ever since the then Dubai Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum gave his approval for freehold sales in May 2002. More and more projects have been launched since then, and more than 1,250 are registered today with the Real Estate Regulatory Authority.
But the problem has been, and remains, that supply has not kept up with demand, and this has forced the price of completed units higher and higher, and the off-plan market bases its prices on the price of secondary sales.
At the same time, the demand for property in Dubai has escalated on the back of the Third Oil Boom. Dubai is not earning much directly from oil these days but as the business and financial hub for the Gulf States the city has seen its GDP treble in this period. This huge surge in business activity has produced a massive increase in demand for real estate of all types.
Now in the particular case of real estate available for foreign ownership this is still a small market in absolute terms. How many units have been delivered by developers to date? Only some 20,000; and for a market that needs 26,000 units per annum to house incoming residents.
Given the bottlenecks in the construction sector in men and materials, and the competition for these scarce resources from new building sites in Abu Dhabi and Ras Al Khaimah, there is little sign that actual delivery of projects in Dubai is likely to improve anytime soon. In fact, projects are slipping further behind. Two years is now the average delay.
The big numbers of the development portfolio totals should always be compared to work actually in progress. And in the UAE, less than five per cent of projects announced are actually under construction. Vision and reality is not the same thing, and the difference between the two gives you the explanation for why Dubai house prices are hurtling upwards.
Unless the Third Oil Boom comes to an abrupt end it is therefore reasonable to conclude that the Dubai real estate boom will continue and that prices will rise to, or even exceed prices that real estate achieves in other global cities.
Dubai today is making an even more rapid transition from a regional port into a global city, and this is the new benchmark for property prices. Eventually there will be a correction but only to a price level still far above where the freehold market started in 2002.
Let's consider the local property cycle in relation to global markets.
If we look at the US market then residential property started to soften in the summer of 2006 and began to crash last summer. The UK was about 12 months behind and suddenly came unstuck with the sub-prime shock last August, although prices had been perilously high for a couple of years.
You could argue that Dubai is still several years behind this curve. Negative real interest rates are being set to very low levels because the dirham is linked to the US dollar. House prices while higher are not yet among the highest by global standards. Local rental yields are high, particularly in comparison to deposit account rates. And demand from a constant inflow of new immigrants remains well above available supply.
This is a very strong bull market case, and the momentum in the market with price rises of 78 per cent is clearly enormous. If you liken a real estate market to an oil tanker then it will take a long time to slowdown. But actually all the pressure is for more price rises, and the first thing to watch for will be a slowdown in the rate of price increases. Don't hold your breath for falling prices anytime soon. Donald Trump knows what he is doing.
"My project with Nakheel will be one of the most impressive undertakings that I have ever been a part of," he said. "I am thrilled with the early sales of the residences."
Unless you have been living cut off from the outside world you may have heard that Dubai has a property boom, and with the Middle East benefiting from record oil prices to the tune of $500 billion a year, this boom is getting stronger and not weakening with the global economic slowdown.
The startling statistics from Colliers International showing Dubai house prices rising by 78 per cent in the year to the end of the first quarter raise an obvious question. Why are Dubai house prices increasing at this near exponential rate when in the rest of the world real estate markets are crashing? And how much longer can this rate of increase continue?
House price increases since Colliers International completed its field work suggest that this very high rate of growth in prices has been sustained into the early summer. The usual seasonal pattern is for a lull, particularly in July and August when many people are on vacation, and for a sharp pick up in prices in September.
The Dubai real estate market has been gaining momentum, with some quiet periods usually over the summer, ever since the then Dubai Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum gave his approval for freehold sales in May 2002. More and more projects have been launched since then, and more than 1,250 are registered today with the Real Estate Regulatory Authority.
But the problem has been, and remains, that supply has not kept up with demand, and this has forced the price of completed units higher and higher, and the off-plan market bases its prices on the price of secondary sales.
At the same time, the demand for property in Dubai has escalated on the back of the Third Oil Boom. Dubai is not earning much directly from oil these days but as the business and financial hub for the Gulf States the city has seen its GDP treble in this period. This huge surge in business activity has produced a massive increase in demand for real estate of all types.
Now in the particular case of real estate available for foreign ownership this is still a small market in absolute terms. How many units have been delivered by developers to date? Only some 20,000; and for a market that needs 26,000 units per annum to house incoming residents.
Given the bottlenecks in the construction sector in men and materials, and the competition for these scarce resources from new building sites in Abu Dhabi and Ras Al Khaimah, there is little sign that actual delivery of projects in Dubai is likely to improve anytime soon. In fact, projects are slipping further behind. Two years is now the average delay.
The big numbers of the development portfolio totals should always be compared to work actually in progress. And in the UAE, less than five per cent of projects announced are actually under construction. Vision and reality is not the same thing, and the difference between the two gives you the explanation for why Dubai house prices are hurtling upwards.
Unless the Third Oil Boom comes to an abrupt end it is therefore reasonable to conclude that the Dubai real estate boom will continue and that prices will rise to, or even exceed prices that real estate achieves in other global cities.
Dubai today is making an even more rapid transition from a regional port into a global city, and this is the new benchmark for property prices. Eventually there will be a correction but only to a price level still far above where the freehold market started in 2002.
Let's consider the local property cycle in relation to global markets.
If we look at the US market then residential property started to soften in the summer of 2006 and began to crash last summer. The UK was about 12 months behind and suddenly came unstuck with the sub-prime shock last August, although prices had been perilously high for a couple of years.
You could argue that Dubai is still several years behind this curve. Negative real interest rates are being set to very low levels because the dirham is linked to the US dollar. House prices while higher are not yet among the highest by global standards. Local rental yields are high, particularly in comparison to deposit account rates. And demand from a constant inflow of new immigrants remains well above available supply.
This is a very strong bull market case, and the momentum in the market with price rises of 78 per cent is clearly enormous. If you liken a real estate market to an oil tanker then it will take a long time to slowdown. But actually all the pressure is for more price rises, and the first thing to watch for will be a slowdown in the rate of price increases. Don't hold your breath for falling prices anytime soon. Donald Trump knows what he is doing.
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