Is it time to look at the United Arab Emirates.

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To some people the above headline may seem a little strange as we have seen investors leaving the Middle East over the last few weeks with many convinced that the boom in property prices is now over. We have seen <a href="http://www.halconrealestate.com/dubai_marina_property.aspx" target="_blank" title="Dubai Marina property">Dubai Marina property</a> prices start to soften and this seems to have been the catalyst for a change in tack and attitude towards property in the region, but is Dubai a one off market or a reflection of the overall UAE property market?

While it would be foolish to suggest that property prices in the United Arab Emirates (UAE) have not suffered in some way because of the worldwide credit crunch the recent move by the leaders to guarantee ALL bank deposits with national banks seems to have caught the eye of some very astute investors.  Even though many have only recently made up their minds to leave the market, the affective guarantee given to the UAE banking system is a very big move indeed.

Background to the UAE property market

Like so many property markets in the region the UAE property sector seems to be dominated by the Dubai market when in fact there are a number of markets at very different stages.  Some areas of the UAE market are developed while some are more mature and as such they do not have as much new development coming online.

However, it has to be said that some areas of the UAE have seen off-plan property prices increase by up to 50% over the last year at a time when the economy, property market and the banking system were seen to be as solid as a rock.  However, the rot started to appear in the Dubai market with more and more investors calling the top of the market and it then spread to other areas of the UAE.  There were concerns that any issues with the banking system, caused by the credit crunch, would affect the flow of capital to the property market and see overseas investors look elsewhere or sit on the sidelines.

The economy

It will come as no surprise to those who have covered the market to learn that the UAE economy has been one of the better performers over the last few years with GDP growth figures around 35 percent for 2006 alone.  While there has been a slight tail off over the last couple of years the UAE economy is still one of the fastest growing in the world.

Historically the UAE economy has relied heavily upon natural resources such as oil and gas and while it would be foolish to say that these are no longer important, their role is not as prominent as it once ways.  While in some ways the UAE as a whole and Dubai are very much at different stages with regards to their property markets, new income to the region has been invested wisely with the introduction of  new long term business sectors such as tourism.

It is reported that currently there is over $300 billion worth of property investment in development in the UAE and even considering this massive program many are forecasting 2012 before the supply and demand lines switch over and supply overtakes demand, i.e. what many believe will be the top of the market.  Whether this will be the case remains to be seen but the UAE economy is stronger than the vast majority of the developed and developing nations of the world.

Outlook for property market

When you consider that we have the following projects under construction in the UAE at the moment it is not difficult to see how quickly the market has, and continues to, grow :-

The Burj Dubai

The Burj Dubai skyscraper is not even due to be finished until September 2009 but it is already the highest man made structure in the world. Located in the business bay district of Dubai it has already had a major impact upon the business world with demand for space very high.

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The Dubai World Central International Airport

Dubai World Central will be the largest airport in the world when it is finished and at a cost of $82 billion it will be by far and away the most expensive.  It will be capable of carrying 120 million passengers a year and 12 million tons of cargo, making it the largest cargo hub in the region.  The Dubai World Central International airport will be central to the performance of the UAE as a whole.

Palm Islands

The famous three Palm Islands in Dubai are expected to have a massive impact upon the growing tourist sector in the region.  Built in the shape of a palm trees each island is a work of art, one of the more complicated resorts ever built and will literally have everything the tourism market would ever need.

The future

While there has been some sign of property prices softening in the UAE, this seems to have only been a temporary occurrence if all of the headlines are anything to go by.  However it must be noted that the region does rely heavily on overseas investment and while UAE bank deposits have been guaranteed (apparently foreign banks may also be part of the deal which secured national bank deposits) some overseas investors might struggle to raise substantial funding at the moment.

On a general note, it is good to see that the authorities have been investing into other areas of the economy other than oil and gas.  This divergence away from the natural energy sector could not have been better timed and the area should reap the rewards in the future.

Conclusion

While Dubai still dominates the UAE property market it is not the only property market which has performed well of late with all other six states seeing marked growth over the last few years.  The move to secure bank deposits has been well received by the markets although it is interesting to see that property company share prices have been in freefall of late while the sector has not been hit as hard.  Is this a sign that the UAE property market may be in for a period of consolidation at best?

James Hunt

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Is it time to look at the United Arab Emirates.