As Dubai Property Boom Slows Down, Investors Look Northwards

The current state of Dubai, following the recent introduction of an escrow law, where developers in Dubai are now not allowed to make use of use purchasers’ deposits on other projects, coupled with the ever increasing costs of raw materials for construction, has now resulted in many developers deciding to launch their new off-plan projects in northern and regional emirates instead, this move is also believed to be able to ensure far better returns for all.

The past six months has seen the costs of raw material (imported from China) sky rocket. The price of cement alone has increased by an astronomical 40% more than what it cost this time last year. There has also been some impact made by the removal of certain tax incentives for Chinese businesses.

All aspects considered, including the current credit crisis, which is beginning to make itself known across the emirate, is an indication of a change in momentum for Dubai.

Although it is far too dramatic to say that Dubai is on the brink of certain meltdown, it is most defiantly a deciding factor now that the global monetary crunch is starting to take its toll in Dubai.

According to a property analyst, “Project finance has become more expensive and harder to raise courtesy of the global credit crunch and almost every local developer will be looking to gear their local project to achieve a higher rate of return on equity employed. If finance costs more, then the viability of a proposed project may shift significantly,”

As international investors are already picking up on the current shift in momentum in Dubai, there are reports of an increasing number of new projects and developments, as well as rumours flying around about the fact that the government’s investment has been given to the northern emirates of Ajman, Umm Al Quwain, Ras Al Khaimah and the regional city of Al Ain, has left the international investors community riveted by the fact that investment is still possible and probable.

Judging by the move made recently by The U.A.E’s government, to invest rather heavily in the emirate of Ajman (the smallest U.A.E state), whilst announcing the construction of a new airport for the region, is more evidence that Dubai’s time as the property sector of choice in the emirates is coming to a slow close.

The recent news that a mixed-use airport, due for completion in 2011, led to many a developer snapping up whatever land they could get their hands on, in an attempt to capitalize on the newly available and soon to be readily accessible northern regions of the U.A.E

According to real estate news of late, the fourth largest city in the emirates, Al Ain, is currently experiencing its very own pseudo-property boom. The reason being: many investors are now spreading out on the search for higher profit returns.

According to a reputable and well respected property service firm, Asteco, “rental prices of villas in the city have increased by 30% to 40% as it receives an influx of ex-pat and foreign buyers.”

It is of the opinion of many property experts that “Several new companies have recently opened offices in Al Ain, particularly those with interests in consultation and construction,”

“The need to house new employees has inevitably increased the demand for property. In addition, expatriates working in Abu Dhabi and Dubai are taking advantage of the more affordable accommodation in Al Ain, despite the longer commute. The cost of renting in Al Ain may be rising, but it is still much cheaper than in Dubai and Abu Dhabi,”

All in all one can genuinely see that although Dubai is still a wonderfully lucrative area and destination of choice for investors, there is also a tangible change in momentum, largely due to the fact that Dubai is also now experiencing the ripple effect that the current global credit crunch has on all economies and currencies the world over.