The Dubai freehold property market is only just over three years old; during the past three years the prices of properties for sale Dubai have soared, rental prices have skyrocketed and international real estate investor interest in this Middle Eastern market has intensified incredibly.

But as the dust begins to settle on the first wave of frenzied property buying, flipping, re-sales and rentals it’s time to take a calm and sober look at how the Dubai property market is doing and what the future holds for investors.

The first thing to note is that not every single multi million dollar development in Dubai has faired as well as the next.  For the first time in the brief history of the Dubai property market some units are sitting unsold and serious investor interest in some of the larger scale developments and certain apartment developments is waning. 

The Palm islands and in particular The Palm Jebel Ali are not doing so well at the moment and for the very first time in Dubai, negative premiums have been reported in the Burj Dubai and Jumeirah Village.

The market is far from slumping however - for a start the average rental prices chargeable for residential properties in Dubai are up 37% so far in 2005 alone, proving that the demand for completed properties ready to live in is also up.  And you only have to look at the classifieds sections in local newspapers to see adverts calling for completed properties with buyers ready and waiting to make cash purchases.  But investors are aware that in the very near future the supply/demand shift in Dubai will begin to change.

At the moment demand for completed apartments ready for occupancy outstrips all other demand for properties in Dubai because there have been serious construction delays particularly on the more complicated and ambitious high rise developments which have led to a restriction on supply of apartments ready to live in or let out. 

The population of Dubai is increasing faster than the supply of housing units at the moment thus creating greater demand than supply which in turn creates a market environment in which Dubai property prices can rise sharply.

But while these construction delays remain a serious short term issue, every single week new developments are being announced or going into the first phases of construction and it seems that some developers are oblivious to the fact that the actual physical numbers of apartments being planned and constructed currently will actually wipe out demand and create a surplus of units available in the very near future and that the continued oversupply of apartments will seal up the market for profit for a potentially prolonged period.

This knowledge is beginning to permeate the investor psyche and is leading to a more mature approach to investment in property in Dubai.  Instead of rushing to buy anything affordable from the latest development to be announced, investors are starting to consider the long term attraction of certain developments from a rental or re-sale perspective and as a direct result of this fact the serious overseas interest in real estate for sale is turning its collective interest to villas and townhouses for sale in Dubai.  Certain villa developments have enjoyed between 20 and 50% price increases in 2005 as investors stake their claim on larger plots of land, attractive houses and developments where families moving to live in Dubai in the future will actually want to live.

There’s no doubt about it, the Dubai real estate market has plenty of room to expand and profits will continue to be made by many investors - but now that the initial frenzy of interest is calming down, people are beginning to form a clearer long term picture of how Dubai’s property prices will fair.  The emphasis is beginning to change and interest in quality villa developments is growing...after all, the property market in this emirate has to follow the basic economic rules - where supply outstrips demand profitability will be poor - but where the reverse is true and demand outstrips supply there will be profits to be made - and as more people demand villas, houses, gardens and outside spaces for sale and rent in Dubai this is where the next phase of international real estate investor focus is likely to fall.