Thursday, June 02, 2005

Housing market in Dubai and neighboring Sharjah

The population of the UAE is growing at a rate of 7 percent a year. Most of that growth is due to the continuing rapid growth in the foreign population of workers and their families (if the worker earns above a minimum threshold). The foreign population in open, pro-business Dubai is growing faster than the other emirates. Many of those drawn to Dubai for work take apartments in neighboring Sharjah.

There is a large amount of housing under construction that will come on line in a few years. Little if any of that new construction will be affordable to many working people. Why not?

My conjecture is that investors recognize when the new housing comes on line the price of older housing will come down, and the highest return for that housing will be to re-target it for the next lower income strata. As the new housing for higher income households comes on line, housing for the lower income strata will come on line through conversion. Thus, the lower incentive today to build new lower middle income housing.

That conversion has already begun but it will continue even when rents come down.

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