Where just three years ago UAE-based expatriates could only aspire to rent the flat or villa they lived in, today a thriving real estate market has set its sights on residents and overseas investors alike. In May 2002, Dubai’s ambitious crown prince, Sheikh Mohammed bin Rashid al Maktoum, set in motion a process of liberalisation when he issued a law permitting foreigners to own freehold residential property in prescribed new developments in his emirate.

In a matter of months, investors of myriad nationalities were queuing at the offices of leading state-owned developers to put down deposits on off-plan properties. An unprecedented real estate boom had begun and, although analysts still fear the bubble impact of speculation and supply/demand mismatches, most anticipate a stabilising correction in the market rather than a full-scale crash.


On the face of it, Dubai’s developers seem to have it fairly easy. Year-round sunshine, income tax-free living, real GDP growth of 6.4% last year and plentiful air links via Dubai International Airport support the case to buy for those who work in the emirate or have visited and liked what they saw. But life is never so simple.

Drive for investment

The government’s drive to attract FDI as its oil stocks wane flies in the face of statistics, which show the Arab world garnered just 2% of global FDI flows last year. Dubai may be visibly successful at attracting the regional headquarters of multinationals and an ever-increasing stream of tourists, but it is, nonetheless, in the Middle East – a region that still suffers from bureaucracy and poor levels of transparency.

The government’s strategy to win investor hearts and minds has therefore been to create as many positive headlines at it can. A decade ago these headlines were generated by

TV-friendly sporting events like the Dubai World Cup, a day of horse racing offering an unmatched purse of over $15m. Then a series of free zones were launched, serving industries as diverse as media and healthcare. These were followed by the construction of iconic buildings such as the sail-shaped Burj al Arab and the futuristic Emirates Towers, both part of the Dubai-based Jumeirah hotel chain.

Astutely judging that aspirational living could be a draw for foreign property investors, leading domestic developers, such as Emaar, Nakheel, Damac and Union Properties, have vied with each other to devise the most eye-catching themed residential or mixed-use project. The result is that Dubai is building an inventory of properties that is rapidly gaining global recognition.

At the time the UAE federation of seven sheikhdoms was formed in 1971, Dubai was a small town of 183,000 inhabitants, straddling a creek used by local dhows. Now that the population has exploded to about 1.3 million and visitor numbers have reached 6 million a year, the government has pushed most developments south-west along the coast towards Abu Dhabi.

As a result, a ‘New Dubai’ has emerged from the desert sands about 30 minutes’ drive along the arterial Sheikh Zayed Road from the crowded, often rather tatty Bur Dubai and Deira areas by the creek. This New Dubai is home to several of the free zones that are shaping the local economy, such as the Dubai Internet City and Dubai Media City, and it provides access points to Dubai’s most outlandish real estate projects.

Land reclamation

The first of several major land reclamation projects was Nakheel’s $3bn Palm Jumeirah, a palm tree-shaped resort jutting off the city’s Gulf coastline that has been billed as the eighth wonder of the world. It boasts 2500 beachfront villas ranged along its ‘fronds’, 2400 apartments, 50 hotels and a $1bn Atlantis theme park. Although the first occupants are not expected to move in until next year, each new phase of villas has tended to sell out within 72 hours of release. Prices in the secondary market range from $680,000 for a two-bedroom apartment to $1.3m-$1.6m for a four-bedroom garden villa with private beachfront.

Buoyed by the success of its first Palm, Nakheel moved quickly to start work on an even larger one off the coast of Jebel Ali – the site of the emirate’s major seaport and soon a new six-runway airport. Land reclamation is due for completion in 2007 but sales are already in full swing. Investors will have to wait a little longer, however, to see the third and supposedly last Palm take shape. The $5bn Palm Deira was launched at the end of last year on the instructions of Sheikh Mohammed, and, with an area of more than 80 square kilometres, will be larger than Manhattan when dredging is completed in 2008.

One of Nakheel’s most quirky projects is The World, a series of 300 artificial private islands constructed 4km off Dubai’s coast. As the project’s name suggests, the islands have been grouped in the shape of a world map, although this feature is not visible from sea level. Because the mainland is only reachable by sea or air, The World is expected to become a holiday retreat for the rich rather than a home for commuters.

Dubai Waterfront

This January, Nakheel stunned even the most jaded observer when it unveiled the masterplan for Dubai Waterfront, a project so large it was obliged to set up a separate subsidiary, Dubai Waterfront Company, to manage the investment. Sprawling over 81m square metres and incorporating a 75km man-made ‘Arabian Canal’ designed to extend Dubai’s coastline, Dubai Waterfront is to include more than 250 communities and Al Burj – one of the tallest buildings in the world.

With this latter feature, Nakheel is competing directly with domestic rival Emaar, which has already started construction of the Burj Dubai within an onshore development called Downtown, which it hopes will become recognised as the new heart of Dubai. Initial figures from Emaar put the height of the Burj Dubai tower at 800m, but now it seems as though this will reach whatever height it needs to be to secure a place in the record books. Leading a tour of the completed first phase of construction in March, Emaar executive director Robert Booth said the tower will eventually contain 30,000 residential units and be “a symbol of human endeavour and success that makes Dubai one of the finest cities in the world”.

Looking forward as far as 2008, Nakheel is projected to remain the largest single developer of freehold property in Dubai with a 42% market share (an assessment that does not include the undisclosed number of units to be offered within Dubai Waterfront). Emaar is close behind with 38% of the market, then just 8% for Jumeirah Beach Residence and 2% for Damac.

According to analyst Ahmed Gad of Cairo-based investment bank EFG Hermes: “An estimated 85,000 units are expected to enter the Dubai freehold property market between 2004 and 2008, and this does not include leasehold developments such as the 19,000-unit Dubai Festival City, and other leasehold properties, such as the Green Community developed by Union Properties. Furthermore, new project announcements are made on an approximately daily basis.”

Market moves

Therein lies part of the problem for any investor considering Dubai. Simply keeping abreast of the market is a full-time job, which is probably why there were 830 registered real estate brokers and estate agencies operating in the city by the end of 2004. While Nakheel’s offshore developments are self-contained and will take up all of Dubai’s remaining coastline, developers’ ability to push into the desert interior is almost unlimited.

As a result of the land the government has made available for construction and developers’ strategy of pre-funding new builds through off-plan sales, investors are faced with a mind-boggling array of projects to choose from. Just behind the Emirates Golf Club in New Dubai, for example, Emaar has begun to deliver a series of pastorally themed communities designed to suit a range of pockets.

At the top end of the market, Emaar is selling five and six-bedroom Dyaar Al Hambra villas from $1.8m in the Emirates Hills development, scaling down to $980,000 for a three-bedroom Montgomery Maisonette facing a golf course. For those seeking an apartment, $270,000 will secure a one-bed in the Parklands Apartments. Although there are around 8,000 units comprising terraced townhouses in the Springs and Meadows, low-rise apartment blocks in the Greens and garden-shrouded mansions in the Hills, these developments are now only available through the secondary market.


Although it is hard to determine exactly how many buyers are seeking somewhere to live rather than an investment, estate agents believe that 70% are likely to be speculators lured by the prospect of rapid capital gains. Freehold prices rose between 50% and 100% across the board in 2004, while rental prices rose by around 40% and are expected to increase by a further 50% this year. Full-year 2004 statistics released by the Dubai Chamber of Commerce and Industry quote rental prices for a two-bedroom apartment in the desirable Jumeirah beach district at between $12,000-$27,000, rising to a bandwidth of $27,000-$68,000 for a villa of similar size.

International investors buying to let have been attracted by yields that, at 7% to 10%, compare favourably with pre-tax yields of 3% to 6% in markets such as the UK and India. It is understood many of Dubai’s property buyers come from both of these countries. According to survey results released in late July by real estate company Investment Boutique, demand for villas is currently stronger than for apartments. This is a logical conclusion given that in the Jumeirah Beach Residence and Dubai Marina developments alone some 15,500 units are coming on to the market. The survey found that villa prices rose by an average 22% in the first half of 2005, while apartment prices dropped by 7.4%. Suggested reasons for this divergence include better returns per square foot offered by villas; a villa inventory shortage relative to demand from residents; and the temptation for smaller investors to turn from apartments to the local stock markets, which have been performing at record levels in recent months.

Having watched Dubai’s progress as a pioneer of real estate liberalisation in the Gulf, other emirates are now cashing in on the boom by launching their own freehold developments. Ras Al Khaimah, the most northerly emirate in the federation, was first past the post when it launched 1300 units priced between $82,000 and $820,000 at the Al Hamra Village. This offers beach and mountain views plus a golf course in phases from this year. Further south, a developer in Ajman has launched the Al Naeemiya Towers project close to the Sharjah border, while Pearl Residence apartments start at $54,087 for a one-bed. In July, Dubai’s Emaar announced the construction of a $3.3bn development comprising more than 9000 residential units on the coast of Umm al Quwain.

The governments of each of these emirates are banking on the lower prices and less congested living environment their lands can offer residents, plus easy road access to Dubai.

Apart from the emirates of Sharjah and Fujairah, whose plans for property liberalisation remain unclear, Abu Dhabi is the only emirate still to forbid foreign property ownership. Ironically, however, it is Abu Dhabi as the federal capital that wields the most power over the future direction of the market.

The anticipated success of Al Dar’s new $15bn, 60-tower Al Raha Beach development just north of Abu Dhabi city, however, could help to convince the government of residential property’s investment potential. Even though sales were only open to Emiratis, the first phase of 365 villas offered by Al Dar in June sold out in 45 minutes. When the second phase was released in July, the company had to restrict sales to one property per person when it found 21,000 UAE nationals on its doorstep, cash in hand. Doubtless some were seeking new property to occupy themselves, but the majority are convinced that their initial investments will be repaid many times over once foreigners are able to buy properties too.

Mature market

For investors thinking of buying property in Dubai – still by far the UAE’s most mature freehold market – potential risks and rewards will need to be balanced carefully. Downside risks include rising interest rates, which would depress demand for mortgage-backed purchases thus weakening demand. The gap between supply and demand also seems to be narrowing, especially for apartments, and some analysts are concerned that developers are focusing on luxury properties at the expense of the affordable properties needed by working residents.

Facing down these concerns, the market’s bulls point out that Dubai property is competitively priced against mature markets such as the UK, and that the UAE’s oil-fuelled economy is expected to flourish for the foreseeable future. If Dubai’s government can continue working its economic miracle through new free zones, such as the Dubai International Financial Centre, and leisure projects, such as the Singapore-sized Dubailand theme park, the inflow of affluent white-collar workers and tourists should continue to grow and grow.