Dubai is the second largest and wealthiest emirate in the UAE. The emirate has become well known as a desirable tourist destination, offering luxury holidays at excellent and unique hotels, all year round, a shopping "paradise" and a trading centre for the area. The following graph depicts the growth of the GDP of Dubai over the last 6 years, the largest proportion of which is revenue from non-oil sectors.

At the same time, a different aspect of Dubai is emerging in relation to its role as a financial hub. With the launch of DIFC, an independently regulated off-shore community held to international standards in terms of rights, regulations and codes of business ethics, and DIFX, an international stock market meant to bring together the financial centres of east and west, the image of Dubai as a financial centre is being widely promoted and gradually recognised around the world. Some of the defining factors that are influencing and shaping the economy of Dubai are outlined below.

Foreign Investment - The relatively sluggish economies of the west and Japan have driven investors to seek alternative opportunities in emerging markets such as that of Dubai. The government of Dubai is offering incentives to attract foreign investment, as part of the policy aiming to establish alternative sources of income and reduce dependency on oil revenues. For example the provision of a tax-free business environment, prime commercial space outfitted with the latest in technology, opportunities to purchase land and free-zone structures amongst others. In particular, free-zone structures offer a multitude of advantages to foreign investors, differing from one zone to another but typically including:
• 100% foreign ownership
• Exemption from corporate and income taxes
• Exemptions from customs duties
• The freedom to repatriate both capital and profits
• Absence of currency restrictions
• Abundant inexpensive energy supply
• Efficient transport and distribution facilities
• A high level of administrative and recruitment support via free-zone authorities\' comprehensive and efficient One Stop Shop facilities.

There are several free-zones and all create investment incentives in the sectors Trading, Medicine, Technology, Media, Metals & Commodities, Education etc.

Geopolitical stability - the UAE is characterised by safety and stability in a region traditionally associated with political uncertainty. The latest developments in nearby countries such as Iraq and Iran, are directing many investors from these countries to seek opportunities in the prosperous, familiar and less turbulent economy of Dubai.

Oil Prices – The price of oil has increased steadily from an average of $20 to $70 a barrel and the financial surplus has been channelled to either one of the two investment avenues expected to provide high returns, namely the stock exchange and real estate.

Stock Exchange – the Dubai economy has grown steadily over the last few years, with 93% of Dubai’s GDP coming from non-oil sources in 2004, a share which is increasing, particularly in the real estate, trading and tourism sectors. However, the Dubai Financial Market suffered a stock market crash in March 2006, dropping below 500 points from a high of 1300 points the previous year. During approximately the same time, the government passed the long expected Property Law legalising foreign ownership of real estate, which will certainly boost the real estate sector by opening the market to the rest of the world, and by re-directing funds from shares to property. Meanwhile, local investors are diversifying their portfolios to include European and US stock, an endeavour facilitated by the presence of the various financial institutions setting up in the Dubai International Financial Centre (DIFC).

Interest rates –In the last 20 months, US interest rates have risen from 1% in 2001 to almost 5%. Since the local currency, the dirham, is pegged to the US dollar and the interest rate policies of the two countries are closely tied, the cost of owning property in the UAE has subsequently been affected. This is particularly true for the large expatriate community, which in an effort to move away from ever increasing rents by purchasing property, is now faced with larger down payments and rising interest rate on variable rate mortgages. UAE monetary and banking indicators show that Personal Loans increased by 66% in the period 2004-2005 when Total Credit increased by 37.5% during the same period , thus making homeowners more susceptible to increases in interest rates.

Gold and Metal prices – Gold prices have hit 25-year highs, rising along with other precious metals as investors seek protection against rising inflation. It touched highs of $608.40 an ounce before settling at $599.40. Silver also hit 23-year peaks while zinc and copper touched new record levels . The price of steel has increased by 30%-40% in the last 18 months, directly impacting the cost of construction.

Economic Summary- Since the events of 9/11, regional investors have sought to keep their assets in the area and Dubai is a preferred option. Dubai enjoys steady growth, political stability and a tolerant social environment combined with world-class infrastructure. The recent course of interest rates and rental rates which have contributed significantly to the increase of the cost of living in Dubai, are expected to affect individuals to a much larger scale than investors. Demand is very strong, especially in the property sector and large investors may turn to bulk buying of real estate assets. Rents on the other hand are expected to normalise as supply floods the market, which in turn may drive landlords to locking in longer term tenancy agreements, providing a sense of stability and safety for the tenants.