Wednesday, August 06, 2008

Dubai property prices likely to fall 10 percent

The property prices in Dubai have surged 79 percent since 2007, and, may fall 10 percent by 2010, with the supply surpassing demand in the Gulf emirate, reveals a research not by Morgan Stanley.

This correction in Dubai's realty sector could have an undulation effect on its neighbouring countries in the region, with the shares of 12 regional property firms, dropping an average of 35 percent, states the research note.

At the worst, Dubai property prices may follow the pattern experience during the late 1990s in Singapore, wherein property prices dropped 80 percent in 18 months, although it is a "low probability event", said Morgan Stanley report.

Dubai property market will see an oversupply in 2009, which will lead to a series of price declines. Although these price declines are limited to Dubai, given the level of undersupply in neighboring markets, one cannot ignore the 'contagion' effect on Middle East, North Africa property share prices, with the investor confidence levels dropping down, Morgan Stanley said.

Being home to man-made palm-shaped islands and indoor ski slope in the Desert, Dubai hit the property boom in the region in 2002, when the foreigners were invited to invest in real estate. Thereafter, the regional economic growth in Dubai was supported manifold by the rise in oil prices, which drew streams of investors into the business and trade hub.

The Standard Chartered Bank last month mentioned that Dubai was boiling with speculators inflating prices of real estate that are still under construction. It was recommended that the emirate introduce capital gain tax to deter short-term investors.

Now, as per the Morgan Stanley price index, the property prices in Dubai surged 25 percent during first half of 2008, but is higher by 79 percent as against that in the beginning of 2007. The price increases have been driven by a variety of factors including speculation, genuine demand, and escalating construction costs.

For 2009, the prices will begin feeling the pressure, once oversupply becomes evident. Hence a 10 percent decline in property prices can be expected between 2008 and 2010, reveals the Morgan Stanley note.

Few developers are in fact, trying to keep away short-term investors. The developer of the Palm Island, Nakheel, has asked buyers at Trump International Hotel, to wait for a year, before selling off their units to the secondary market.

Although, Dubai is the leader for the Gulf Property market, the minor relaxation in prices in the emirate, may however, not bear an impact on Abu Dhabi and Qatar, as the property sectors here is likely to remain undersupplied until 2012, the report concluded.

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