Friday, November 23, 2007

Property in Dubai (1)

Some years ago, when Nakheel announced that they would be selling property to non-Citizens, I was taking some friends on a tour of Dubai. The tour pulled up to a bit of pristine, blue Gulf water, and the tour guide gave his spiel: 'All land that is part of the UAE is only for Citizens, so Nakheel building new land here that anyone of any nationality was able to buy. But all the land they going to build already sold, no more left for people who not UAE Citizens. All big movie stars buy land here.'

Meanwhile, Emaar was offering properties in the middle of the desert for 30% down. Actually, it was 10%, then, a few weeks later, another 10%, and a few weeks after that another 10%, but the final 70% wasn't due until the property was completed and ready for hand-over.

At this point, many investors lost their money. They put their first 10% down, and sold the property at a profit. Only they couldn't. 'Emaar sold the right to live in the property forever. This right is not transferable without Emarr's permission, and Emaar is not giving permission except under unusual circumstances.' So the speculators lost their 10% down payment.

For those who put up the entire 30%, Emaar began giving 'permission to transfer' letters long before they managed to complete the properties, and those speculators made a good profit.

On those early properties, Emaar charged enough to cover the costs of construction, plus a profit.

It wasn't clear what buyers were actually buying, so it wasn't clear if the properties were a good investment.

Since then, however, prices have more than doubled. People who put 30% down and borrowed the balance have a profit of more than 300% (because of leverage), so the properties were, in fact, a very good investment.

But the question of whether the properties are a good investment remains, since it is very difficult to prophesy, if one tries to do it with respect to the future.


Blogger Zhanna said...

Hi Dubai@Random,
Thanks for the interesting information.
As for me there are 2 main advantages which buying off plan property in Dubai offer:
1.To offset the fact that the investors cannot physically see what they are investing in (only computer generated images at best), the developer provides a reduced price for the Dubai property. If you invest right from the start of an off plan development, this reduction can be as much as 50% from the price it would have been if the development were completed at the time of purchase.
2.As property prices in Dubai are currently increasing by as much as 25% per annum in the best developments, by the time your off plan property is completed, you will have made a significant capital gain.

2:32 pm  

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