It may yet all end in tears, but the property boom that is changing the face of many Gulf cities looks like it’s going to last through 2005 and beyond.

Oman earlier this month approved a new law that will allow foreigners to acquire property in the sultanate. In October, freehold properties to be built in the keynote $2,500 million Pearl-Qatar project were put on the market for the first time. There is now talk of a new property law in Abu Dhabi which could presage a similar development in the emirate.

But it is Dubai which continues to defy forecasts and the established laws of economics in a speculative building bonanza. All the properties on Palm Jumeirah, the original palm project, have been sold. The first buildings are being completed and residents are due to arrive in 2006. The road connecting the palm with Sheikh Zayed highway is now under construction.

Dredging for the second palm off Jebel Ali is now more than half-way through, but here too there has been a sell-out. Encouraged by the skyrocketing demand for the first two projects, Dubai Crown Prince Sheikh Mohammad bin Rashid announced in October that a third palm will be built off Deira, close to the border with Sharjah. It is estimated that Palm Deira will be bigger than the first two palms combined.

On 24 November, properties to be built on the third palm went on sale amid high excitement that went far beyond the borders of the UAE. As in the previous offerings, purchases are made on the basis of plans. Ownership is secured through the payment of a deposit representing a fraction of the sales price.

Unique

The enthusiasm for the project is perverse as there is no meaningful property price history in the UAE and no one is yet living on the first palm. All three projects are unique engineering projects, with all the risks that entails. And yet, the first investors in Palm Jumeirah are likely to have recorded a return of at least 300 per cent on their initial investment. Some properties have already been sold several times over at steadily increasing prices.

All this can be dismissed as the work of speculators, many of them living outside the UAE, who have no intention of holding properties longer than they need to make a handsome profit. But there are signs that some are forming the view that the Dubai property boom is sustainable. A report released this month about Emaar Properties by Shuaa Capital, the Dubai-based financial group, forecasts that property and rental prices in the emirate are robust and will be buoyant for three years. It estimates that shares in Emaar Properties are trading almost 18 per cent below their fair value.

Such talk can only help fuel the demand for buying in Dubai, which is not yet at fever pitch but soon could be. That is why the pipeline of new projects in the city is probably a good thing. Jumeirah Beach Residences, which is big enough to accommodate up to 100,000 people, is due to be completed during the first half of 2006. At least 150 new tower blocks are being built in different parts of Dubai.

Cheap

With a flood of new property due to enter the market in the second half of the decade, a slump in prices and rents is confidently forecast by those who are holding back now in the hope of buying cheap later.

But the optimists are outnumbering the pessimists, with tangible immediate consequences. Unhappy tenants are facing sharp rent increases as landlords exploit a sellers market. Dubai estate agents, some handling apartments in the city with a price tag of up to $7 million, can hardly believe their luck. They argue that rapid population growth, which led last year to a 15 per cent increase in the number of cars on Dubai’s increasingly congested roads, proves demand for homes will be there.

This is reflected in the office market. Remarkably, there is a shortage of office