Although most purchasers I have acted for have no immediate plan to rent out these exclusive properties, all of them hope that, given the phenomenal world-wide interest shown in Palm, Jumeirah real estate, reasonable capital appreciation will accrue steadily over the next two to five years. The question arises however, is this optimism justified or misplaced?

The Palm, Jumeirah’s bigger and bolder brother The Palm, Jebel Ali has not been marketed in quite the same way and this may account for only around 85% of its available properties being sold. Clearly, shrewd marketers were wise not to dilute the prestigious brand image of the Palm, Jumeirah and we have not yet heard of film stars, soccer players and sundry glitterati buying at the Jebel Ali Palm Island.

The Palm, Jumeirah is clearly being positioned as the flagship development in the Emirate’s bold real estate bonanza. Many other developments are benefiting from a ripple-down effect as a result. Local and overseas interest is not just reserved for the Palm Islands though. Emirates Lakes, Jumeirah Beach Residence and several other equally attractive developments all report healthy local and overseas interest as well as booming sales. A secondary market has not yet fully evolved in these developments however and this reflects a more realistic view of the state of the residential property market in Dubai today.

Most estate agents in Dubai naturally paint a rosy picture of healthy predicted rental yields (one developer actually guarantees a 7% rental return for three years) and healthy predicted capital growth…But they always do, don’t they?

However, before getting carried away with the promise of future riches, bear in mind the following considerations:

(1) The Government of the UAE/ Dubai has not yet enacted legislation to permit non-UAE/ GCC nationals to own land on a freehold basis. Despite indications that legislation is imminent no firm date for enactment has yet been announced.

(2) Entry of foreign nationals to Dubai is subject to tightly controlled immigration laws and visa requirements. Ownership of land in Dubai does not render a foreign national exempt from these immigration laws and visa requirements.

(3) Building professionals tell me that generally (given the extremes of heat and humidity and the type and quality of building materials used), the life-span of a building in the region rarely exceeds 50 years and therefore requires a prudent programme of (potentially costly) maintenance and repair throughout the life of any property. Of course, different developments/developers will probably use different qualities and types of construction materials and a prospective purchaser is advised to seek guidance from an architect experienced in the region. A potential implication of this is that banks will be, understandably, hesitant to lend money on property over 10–15 years old. This may tend to eventually reduce the available ‘pool’ of prospective purchasers in the longer term and consequently serve to inhibit capital growth.

Generally, a prospective purchaser must always remember the ‘six principles’ of property investment. (Apart from the first three principles, dictated by the imperatives of ´Location! Location! Location!´) The most important of these is:

Know Your Market

The property market like any other market is driven and underpinned by the realities of supply and demand. The residential property market in Dubai is not exempt from these realities and indeed, why Dubai is so successful in all sorts of different areas, is that it fully understands and exploits the supply/ demand dynamic.

Applying this equation in the context of Dubai’s real estate scenario is a must. As long as the number of residential developments, which sell property to expatriates, is kept reasonably low (so as not to outstrip demand), the market will tend to put upward pressure on property prices, thereby promoting capital growth.

Rumours abound that a moratorium on new residential developments for sale to expatriates has been imposed but no meaningful specifics have been yet confirmed or released.

Risk vs. reward

In essence, it is the case that the greater the risk in a venture, usually, the greater the reward. For instance, British expatriates buying residential property in the UK is generally considered to present a low risk (although there have been a few notable exceptions) given that there is a series of well-tried and tested land laws and legal / contractual procedures which have been around for decades. Perhaps, more importantly, the ‘market’ itself is well-established and therefore, enjoys an element of predictability. In addition, expatriate purchasers are personally familiar (in varying degrees) with these laws and procedures. Whereas, for an expatriate, buying property in Dubai, all is new and unfamiliar. Indeed, it is a remarkable new initiative in the Emirate’s legal and commercial development per se. As such, the fledgling Dubai real estate market is young, vulnerable and largely unpredictable. Compared to the UK, buying property in Dubai may reasonably be described by some as a medium risk. According to many, the rewards that ownership in Dubai promises to bring far outweigh the real (rather than apparent) risks involved. This requires a personal balancing and evaluation process, and a prospective purchaser’s own risk profile plays a large part in that process.

Let the Buyer Beware

This last principle, caveat emptor, sums up the essence of the message central to this article - as long as a prospective purchaser knows the exact legal position and all the relevant facts, giving due attention and consideration to the six principles, it is up to the individual to decide whether to purchase or not.

In conclusion, I must pay homage to a certain UK Financial Times journalist who wrote an entertaining and informative article on buying property at The Palm Islands some months ago. His article title, in a nutshell spells it all: “Dubai: But Do Be Careful”. Spot on.

[Stephen Ballantine is legal consultant in Dubai who regularly contributes articles on real estate matters both locally and internationally.]