Saturday, March 22, 2008

Middle East property market faces risk of being overstretched

The regions property market is facing the risk of being overstretched, said an industry official during a recent conference held at Dubai.

The real estate transactions in Dubai were worth $18billion in 2006, and as per current estimates a staggering $158billion is invested in the property sector of Dubai.

A survey, conducted by 'The Financial Times' reported that Dubai is 'at the cutting edge' of world property markets, with property values shooting up by 150 percent over the last two years, which is a total contrast to the UK property values, which increased only by 240 percent over the past ten years.

According to a UAE-based developer, there is a lot of pent-up capital, looking closely at this region, but, returns will be crushed based on escalating costs. Over the past two years, Dubai has witnessed that rents for premium office space has grown more than double, mounting to $1,172 per square meter in few areas. Three years ago, this figure was only about $538.

The main factor contributing to Dubai's property boom is the ever-increasing population, which is expected to touch 1.9million in 2010. Low-cost property is high in demand, but due to soaring prices of materials, investment in this sector is losing its appeal.

To add to this, high construction costs are hindering the progress of many projects, which is a growing cause of worry among developers and investors, alike. Few developers are even buying back their own stock, unable to continue construction.

A Dubai-based developer has agreed that during the past three months, there has been a steady increase in the sale of partly finished buildings.

The Managing Director of an international consultancy firm says that the problem in Dubai is that it has plenty of inexperienced developers, who are building too much, too quickly, and it is getting hard to sustain them.

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