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Dubai: Delays taking place in the completion of residential property projects in Dubai this year will continue in 2008, while a price correction is most likely in 2009 when supply will exceed demand, according to a new market report.
There will be increased supply of property next year but it will be absorbed by pent-up demand between 2005 and 2007.
"We believe that the delay in property handovers seen in 2007 will likely continue over the next 12 to 18 months," investment bank EFG Hermes said in its UAE outlook report for 2008.
Real estate prices are forecast to rise by five to 10 per cent next year, and likely to peak in the second half of the year as a rising supply of property units becomes available.
The gap in supply this year is about 20,000 residential units worth Dh34 billion, housing finance firm Tamweel said in October.
Tamweel is expecting about 50,000 units of supply against a demand of 54,000 units next year in Dubai, taking the aggregate shortage to 24,000 units.
EFG expects 25,000 units to be delivered during this year, 64,000 in 2008 and 68,000 in 2009.
"We expect prices will begin declining in 2009 once supply peaks, with a cumulative decline of 15 per cent to 20 per cent between 2009 and 2011," EFG said.
Prices for both villas and apartments rose 18.7 per cent in the first 11 months of 2007, which was above expectations.
Currency boost
The weakening of the dirham due to its peg with the US dollar and improved local real estate regulations are seen as boosting international demand for UAE property.
However, there is a fear that the current lack of confidence in most developed countries could eventually spread to emerging markets in the region.
"This adds an element of uncertainty to our demand forecast, since it could potentially cause property prices to decline sooner than expected," the report noted.
Shortage in the supply of commercial property is forcing companies to rent temporary spaces in villas or to set up smaller offices. Huge demand for offices has pushed rents up by 40 per cent high in the city.
"Dubai is one of the most expensive business cities globally, with an average rent of $98 per square foot, almost as high as New York. This compares to $106 in Hong Kong, $127 in Paris, and $189 in Mumbai or $68 in Abu Dhabi," EFG noted.
The report estimates commercial occupancy rates of around 99 per cent in both old and newly-developed areas of Dubai.
But as the city grows in importance as the region's business hub, the outlook for commercial property is seen as bright.
"In contrast to North America and Western Europe, whose markets for commercial property appear fragile, we see the popularity of Dubai, the financial and business hub of the Middle East, continuing to grow," the report said.
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