Why Dubai

Dubai has also been lucky with its timing. Record low interest rates and dismal stock markets are good news for realtors.

There is another good reason why Dubai property is a hit. Because the Dubai government is behind the real estate boom, and has secondary motives such as attracting wealthy immigrants to the city, luxury villas and apartments are being sold very cheaply. 

One way you can judge if real estate is cheap, or not is to look at the yield, or rental return. In the case of Dubai a basic yield of 10% on residential property compares with a 6.5% local mortgage rate. Now in London 3-4% would be considered good a good yield today, so 10% implies a considerable undervaluation of property.

Of course, an increase in the supply of property may reduce yields in Dubai. However, that will take some time. The buyers of apartments on Palm Island will not actually move in until the end of 2006.

Indeed, the problem is rather the reverse in Dubai. The supply of property is not keeping up pace with demand. A city with a GDP growth rate of around 8% sucks in new people all the time and has a burgeoning demand for housing.
 
That would mean that villa and apartment values will ratchet still further upwards as freeholders take possession. For the time being buying property in Dubai looks a sure fire winner, if you can find a property to buy.