Thursday, January 04, 2007

More buildings please

I'm currently back in Dubai for the New Year and Eid, and once again struck by the enormous amount of construction that's going on here. Entire towns, ski slopes, islands, mountains, lagoons, etc. are being built built. One single development alone will house 500,000 people. Dubai has a population of around 2-3M.

At the same time, Sharjah, which was once a distinct Emirate but now is essentially a low cost suburb of Dubai, has announced a price cap on rents of ~10% a year (note, inflation in the UAE is kind of high -- about 6% a year or more) which has essentially fixed rental prices in real terms. It seems that residents were getting fed up of 20%+annual rent hikes and agitated for relief.

It seems unimaginable that the demand for housing so outstrips supply that prices are being driven up by 20%+ a year, given the amount of contruction that is going on. I have to beleive that, as projects complete and come on the market, supply will rise dramatically and rents (and prices) will fall. Otherwise, I'd conclude that Dubai still does not have enough buildings and they need to make more.

(Note: Yes, the rent cap is just in Sharjah, but the real estate markets of the two are very closely linked -- they're like Manhattan and Brooklyn, or Boston and Cambridge, with lots of cross price elasticity)


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