Thursday, September 27, 2007

Drop in residential property prices not likely until 2009: EFG-Hermes

A recent research report from EFG-Hermes, the Regional Investment Bank, states that the residential property market in Dubai continues to mature, but with the supply surpassing demand during the next one year, a drop in property prices cannot be expected until 2009.

residential property prices
The report points out that the delivery of completed projects this year has touch only 11,000 units, out of the 57,000 units that were being expected to come on stream. This shows that the market is witnessing a far slower pace of events, and indicates that demand continues to exceed supply. This difference in demand-supply has resulted in revised forecasts of housing unit supply for the next couple of years, with an estimated 25,000 units for 2007, 64,000 for 2008 and 68,000 for 2009.

However, the demand for property is continually on the rise, with increase in population. Assuming that the population in Dubai would touch 1.9million mark by 2010, with the current 1.4million population currently, the demand for housing would go up to 45,000 to 50,000 new units each year.

The Research Analyst at EFG-Hermes, Sana Kapadia says "Supply in residential property market will continue to be restrained this year. We expect the year 2009 to be the peak year for supply, which means that, the market may not see a decline in prices before this happens."

Kapadia went on to add that, a 10-15% rise in average prices is expected this year, while a rise of 5% to 10% is expected in 2008. Due to most supplies hitting the market in 2008, the prices will begin to drop in 2009, witnessing an approximate decline of 15% to 20% by 2011.

However, the exact difference in prices which EFG-Hermes forecasts for the year 2009, would depend on the pace at which new units come into the market and the extend of demand at that time.

As for rental prices, EFG-Hermes predicts that the rate of rental growth during the first eight months of this year, is likely to continue until early next year.

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