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June 2, 2008
Dubai: Investment prospects for 2008
Dubai has had its detractors for some time now and there are people who seem to be keen to see the property boom of the last few years come crashing to a halt. Commentators are split as to whether this growth can be sustained but investment in the real estate sector is predicted to provide 35 per cent of Dubai’s GDP over the next five years. While in Europe and the United States property prices are falling and sub prime is now a well known buzz word, Dubai has stood resilient, sticking resolutely to its free, tax-efficient methods. The result has been a highly modern centre of business excellence, leisure activities and innovative development.
Perhaps the biggest single factor in the rapid growth of the Dubai property market has been that demand has always outstripped supply. This lack of supply is often a result of late-running projects and the speed of the influx of new workers and residents, who all need somewhere to live. According to official figures, over 800 people daily are applying to become a resident of Dubai, some 292,000 a year. EFG-Hermes, the investment bank, has reported that the market will be subjected to its biggest shortfall in supply in the second half of 2008, suggesting prices will hit a peak during this period. After that, the report suggests, we can expect to see more of a buyers market. 64,000 units available for occupation are expected to become available this year, with a further 68,000 in 2009.
Tourism is the most important industry for the future of Dubai and is also its fastest-growing industry, with over 11 per cent of GDP coming from holidaymakers and generating $1.9 billion of economic activity. The introduction of some fantastic new attractions will fuel the growth in tourist numbers, who will be served by the impressive new Dubai international Airport. However, the number of hotel rooms in Dubai is set to increase annually by about 33 per cent per year until 2011, causing some industry watchers to predict that occupancy rates may fall to as low as 60 per cent, compared to current levels of 80 per cent.
The lenient tax regime in Dubai has been one of the major attractions for a large number of businesses, including many multinational companies, some of which have made their headquarters in the city. The investment banking sector inparticular is widely predicted to undergo huge growth in Dubai in 2008, adding to the internet and media hubs that currently dominate the city. This will bring with it an influx of highly affluent employees on large salaries who are looking for somewhere to live and should also employ a proportion of the existing local population.
The lettings market is set to become one of the most important parts of the property market in the futurefor Dubai. A government imposed rental cap at seven per cent of the property value has been in place since November 2005, in order to protect the tenant market from potentially astronomical rises in rental costs due to the gap between supply and demand. This cap is currently not due to be be renewed at the end of this year, allowing landlords a completely free market. This will push many locals to consider buiying property to protect themselves from potentially high rent rises.