DUBAI: Soaring housing prices in Dubai are likely to peak in 2009 before falling at least 15 per cent as the Gulf emirate takes measures to weed out short-term speculators, a Reuters poll showed on Tuesday.
Residential property prices in the desert city, home to palm tree-shaped islands and an indoor ski slope, are likely to jump 35 per cent this year, according to the median of forecasts from 10 analysts at banks, investment firms and research institutions.
Price growth will probably slow to 8.5 per cent next year, when five of nine analysts expect prices to hit a peak after double-digit increases in each year since Dubai opened its property market to foreign investment in 2002.
“After four years of tremendous price growth the market needs a breather,” said Robert McKinnon, managing director of equity research at Al Mal Capital and one of the analysts questioned in the poll carried out from Aug 18 to 25.
“Dubai has taken some measures to tackle speculation which will have some impact on the market.” Six of the analysts say prices could fall at least 15 per cent from peak to trough, including one expecting a drop of more than 30 per cent. Two foresee no correction in prices at all and two anticipate declines of 10 per cent.
The Reuters poll found a 32.5 per cent chance of a correction in Dubai, one of seven emirates in the United Arab Emirates. Five said the chance of a correction exceeded 50 per cent.
“When the correction happens, a lot of existing potential buyers will start entering the market on more attractive prices and thus balancing the market going forward,” said Ahmed Badr, an equity research analyst at Credit Suisse in Dubai.
Speculators in search of quick gains have been a main driving force behind the 79 per cent surge in Dubai housing prices since the start of 2007, according to investment bank Morgan Stanley.
Last month, Standard Chartered Bank said Dubai was overheating because speculators were inflating prices of real estate still under construction, known as buying off-plan.
It recommended the emirate introduce a capital gains tax to deter short-term investors. This week, the Dubai Land Department announced a new law to regulate off-plan property sales.
Expatriates from neighbouring countries facing political instability, such as Pakistan, Lebanon and Iran, for instance, have long been lured to Dubai by its safe-haven status.
“There is enough demand to take the place of speculation, but the demand is at a different price level,” McKinnon said। Even as speculators exit the market, analysts said a sharp fall in prices was unlikely since the state exerts extensive control over supply. Most said residential prices in Dubai were slightly overvalued.
Property rates of residential units in Dubai are all set for a downfall, but only in 2009. Due to a slow pace in the coming up of new property projects in Dubai this year, the impending plunge in property prices in the emirate has been delayed. In the current scenario of Dubai property market, the residential property prices will soar to their zenith, possibly by the later half of 2008 before falling down. In other words, the prediction made by Dubai property analysts last year that property rates in Dubai would fall in 2008 has been put off for another year.
2007 has been a slow year in terms of the number of completed projects handed over in the Dubai property market. Of the estimated 57,000 property units due to be completed, only 11,000 have come up so far. The supply-demand ratio of residential property units in Dubai has to be revised in order to accommodate the estimated 25,000 residential units for 2007, 64,000 for 2008 and 68,000 for 2009. The demand for residential units in Dubai has been on the rise and will continue to do so in direct proportion to population growth in the coming years. By 2010, the population of Dubai will be around 2 million and to meet this demand, on an average 45,000 housing units are required every year.
According Dubaianalysts, property rates will soar by 10-15 percent and 5-10 percent in 2007 and 2008 respectively. By 2009, property prices in दुबई will begin a downward journey resulting in a cumulative dip of 15-20 percent by the year 2011.
Having said this, a lot depends upon the delivery of completed housing projects in Dubai property matrix. Moreover, the much talked about property boom in Dubai is expected to continue at least until the end of the decade.
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