Mention the word 'bubble' to me a few years ago and I would have had fond memories of blowing big ones with Hubba Bubba, curing my depression by murdering bubble wrap and watching the bloop bloop surface in the bath. Mention it 5 years ago and all you could think of was 'dot com' and those stocks that you bought just before they nose dived into oblivion. Mention bubble now, and people think of Dubai property. In the middle of 2004, some of the press joked of a creation of a bubble city. ( http://www.grapeshisha.com/bubblecity.jpg ) suspended in mid air by two mammoth helium balloons and an anti gravity motor. Many fell for the hoax, but it was an amusing anecdote of what some people think of this place. Is it a fair label? In this edition we look at whether the property craze in Dubai is a bubble and provide some helpful hints if you are interested in buying.

Firstly, what is a bubble? When we talk about a bubble in this instance, we talk about rising house prices, further than economic fundamentals would warrant - and they're going up because of some kind of speculative frenzy. It all feels good - and everyone is talking about it. Prices are going up not because of fundamental changes but more because there's a kind of frenzied buying. It is worrying for two reasons, one, bubbles tend to burst and when they do burst, prices can collapse very quickly, leading to detrimental economic consequences. The other problem is that if the bubble continues, then this kind of asset inflation can spill over into broader inflation. That's the theory - it's a little more serious than your bubble gum sticking to your eyelashes.

Is the pace and scale of Dubai's development out of control? Sceptics might think all this is over-ambitious and likely to fail sooner or later. But many have been saying that about Dubai ever since it was just sand and camels all those years ago - and nothing has burst quite just yet. It seems as if this is somewhat of a mystical economic phenomena, not tackled by the text books. But with so much money being thrown to make it the mother of all cities, you can chuck your Stiglitz set text out of the window.

The government in Dubai continues to plough investment into infrastructure and commercial development projects which, in most cases, no private business would consider. And since 911, many Arabs have wanted to move their capital away from the US and into a safer haven, and have followed. Many Westerners have joined in to get a piece of the action. The risk of a real estate sector that is growing at this rate is that there is inadequate equity or growth. If there was a slowdown, there is enough of a cushion to protect the investors. But there is no apparent risk of a slowdown in the coming years. Think occupancy rates in the hotels, think of the tourists that are increasing year on year and the number of corporations moving to Dubai to make the city their home. Think then, of the number of employees who will move out here. And with the airports in both Dubai and Abu Dhabi being increased to ridiculous sizes, there seems an inevitability that the UAE will become even more of a major hub in the future, both in terms of airport traffic and in terms of strategic location.

So far it has been speculators that have made the most money in the freehold boom. But that is starting to change. Many people who work in Dubai, have now shifted to spending their housing allowances on their own places rather than plough them into the ever increasing rents. Property demand typically picks up during periods of boom and we certainly are in the middle of one here with projects such as the Dubailand theme park, the Palm and World islands as well as the many others including DIFC and the recently announced Marine World. Dubai doesn't need the pro-property articles that appear in the press daily to convince a would be investor to look at Dubai. Dubai sells itself.

For a property investor seeking lucrative returns, a new market is always a risky one and the fear is that the market may collapse soon after it has taken off. Dot com - dot bomb. With evidence that prices have increased about 50%, it seems like the ultimate temptation to invest to get some action in case you miss out. Many have speculated already and it not ridiculous to hear that a property has changed hands ten times even before it has been built. Indeed, many developments are sold out within hours of them being announced. Such behaviour has calmed in 2005 and although still occurring, developers are charging up to 7% in transfer fees every time a property is sold pre completion. It seems as though the initial hype is easing and price is settling. We believe that demand will continue to be sustained and prices will continue to rise, though not at the ridiculous rates they have been over the past couple of years.

If the property market in Dubai is to develop with any degree of stability, what is crucial is capturing the base of second homeowners and relocating expats. If the market continues to be speculator driven, the possibility of this speculative bubble is not unlikely. However, a revision of property ownership laws for foreign investors should encourage a more stable property investment climate, helping to avoid any crash that might be caused by a quickly exhausted investor base of opportunistic speculators. Time will tell whether this is the new world or just a great collection of sandcastles.

So you want to buy in Dubai. Here are some useful bits and pieces. (Remember, I'm not your financial advisor - I am neither that qualified nor that boring. I am also pretty hopeless with numbers)

1.Price Examples
Prices are relatively inexpensive compared to other areas of the world and give pretty good rental yields. A 3500sqft 3 bedroom villa in The Meadows will cost you about 1.6m Dhs, and give you a rental yield of about 8.2%. A 3 bed 2200sqft townhouse in The Springs will cost you about 1.2m Dhs and give you a rental yield of about 8%. A 1500sqft 2 bed appartment in The Greens will cost you about 900k Dhs will give you a rental yield of about 7%.

You can check out other prices at eqarat's 'direct from owners list': http://www.eqarat.com/j2ee/examples/jsp/english/Eqarat/main.jsp It also shows the original price and gives you a great understanding of the premiums that have already been made.

Gulf News, the main English speaking paper has a classified section which gives you a picture of what is advertised on a daily basis: http://www.gulf-news.com/Classifieds/default.asp

2. Developers
The main developers are Emaar, Nakheel and DAMAC. Emaar is the big developer responsible for places like The Greens, The Springs, The Meadows, Dubai Marina etc as well as a number of other developments including The Burj. Damac has been around a while and is responsible for Jumeirah Beach Residence and The Waves. Nakheel are developing the big ticket developments including the three Palms, the World and Dubai Waterfront. Check out their websites to get a better picture:
Emaar - http://www.emaar.ae/MediaCenter/VR_Tours/Index.asp
Damac - http://www.damacproperties.com/index2.html
Nakheel - http://www.nakheel.ae/nakheelweb/

3. More Information
There are so many sites talking generally about property in Dubai. The two that we find stand out are Eqarat and the Dubai Property Centre http://www.eqarat.com/j2ee/examples/jsp/english/Eqarat/main.jsp http://www.dubaipropertycentre.com/mailer/ Sign up for their newsletters.
If you are ever in the UAE, then pick up a copy of the Gulf News. There is a 'Freehold' section with many developments listed.

4. The Law about Freehold
As yet, no law has been passed to confirm the right of foreigners to own property in any of the projects launched to date. The law should come into place at some point this year. And although there one might be a tad worried, many of those high up in the government have promised that freehold would be granted in the near future. When this happens it is likely to further boost investor confidence in the Dubai property market. After all, if anything untoward were to happen, Dubai would plumment into turmoil. However, we would be less concerned buying property from the 3 main developers listed previously.

5. What are the pros?
If you like sun, sea, shopping or golf - which includes a large percentage of the west, I think you will like Dubai. It's also tax free (nice) There are many expats - 80% of the total population. You hear the term 'melting pot' fairly frequently and that is what it is - many cultures living happily in one place. The Brits in Dubai are curently estimated to account for about 10% of the 1 million.

6. What are the cons?
It is pretty much a contruction site at present - with about 150 tower blocks currently under construction. Traffic is a killer and will be for a few years until the metro comes into play. The proximity to the rest of the Middle East is also geopolitical consideration that you could never rule out. Saying that, Dubai is one of the safest places in the world.

7. Buying procedure
Expect to pay 10% upfront with staged payments until completion. On completed projects, expect to unload everything straight away. You can get a mortgage of 70%, but the paperwork is a pain. Cash is always king, or consider a second mortgage from back home.

That's all folks. Hope you have enjoyed this edition on bubbles and property. And remember, when you're asked, tell them you heard it on the GRAPESHISHA. Smoke you next time...

2. Our condolences to the London Eye. At 600ft, the world's biggest observation wheel will be built in Dubai. If it is big, it has to be in Dubai

3. Abu Dhabi expects Dhs40bn to be invested in tourism over the next 10 years. See the city now, in its peaceful tranquility before the cranes, bulldozers and construction sites become resident.

4. Dubai announced its first consolidated budget with expeniditure pitched at Dhs52bn, and income of Dhs56bn

5. The market cap of the Abu Dhabi Securities exchange rose to $100bn, an 80% increase in the first quarter '05 making it the second largest in the region after Saudi Arabia

6. Local Arab dress has been banned from all nightclubs in the UAE. We worry about western dress being banned from the shisha cafes.

7. Voip has been banned from the UAE. Expats will have to make do with old fashioned telephones.

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