Saturday, 19 January 2008

Dubai Property Prices Are Falling

A warning on Dubai property prices has been issued by Standard Chartered Bank, which is predicting both residential sale prices and rents will fall back by 5 per cent next year. It reasons that with a stream of developments coming to completion, that even though demand currently outstrips demand, this situation will soon be reversed.

The bank suggests prices, which by its reckoning are still rising at 18.8 per cent per annum, will peak in the first half of next year. However, while Dubai will feel the heat, Abu Dhabi may move ahead on the back of recently liberalised investment rules.

A Prime Group report cited by Standard Chartered estimates that around 52,000 new Dubai residential units will be completed next year, with a further 63,000 set for release in 2008. Given ‘a reasonable assumption’ of 7 per cent population growth for the emirate, this suggests supply will exceed demand by around 6,000 units in 2007 and 33,000 units in 2008. The result is likely to be that property prices and rents will slip for the next two years.

‘We have argued before that residential property prices are likely to come down around 20 to 30 per cent in the next two to three years and we believe that we are getting close to the peak in residential property prices’, said Steve Brice, regional head of research for the bank for the Middle East.

‘While demand is likely to remain strong in the coming years, as Dubai continues to focus on diversifying its economy away from oil, the key is supply’.

The Bank said prices jumped by an ‘extraordinary’ 12.9 per cent in October after a 1 per cent fall between July and September. This ‘may have come from a realisation that estimates for the release of properties reported for the second half of the year are unlikely to be attained. Indeed, one developer at one point suggested it would be releasing 60,000 units onto the market in the second half of 2006 and Prime Group now estimates the full year market figure will only be 40,000. There may also be a seasonal effect at play here’.