Supply constraints in Dubai property market push expected price decline to 2009

The report highlights that the market has witnessed a far slower pace of completed project handovers so far in 2007, with approximately only 11,000 units of the expected 57,000 units coming on stream, meaning that supply continues to lag behind demand.

This supply lag has led to revised housing unit supply forecasts for the next three to four years, with estimates of 25,000 housing units for the whole of 2007, 64,000 in 2008, and 68,000 in 2009.

On the other hand, demand for property continues to rise with population growth. Based on the assumption that the population of Dubai will rise to almost 1.9 million by 2010, up from 1.4 million currently, demand now calls for 45,000 to 50,000 new units per annum.

'Supply in the residential property market is and will continue to be constrained in 2007. We predict that the peak year for supply will now be 2009 - meaning that the market is unlikely to see a price decline before this occurs,' explained Sana Kapadia, Research Analyst at EFG-Hermes.

'We expect a rise in average prices of 10-15 per cent in 2007 and a rise of 5-10 percent in 2008. Following a peak in 2H2008 as more supply hits the market, prices will start to decline again in 2009, with a cumulative decline of 15-20 per cent by 2011.'

The extent of the price correction that EFG-Hermes forecasts in 2009 will depend primarily on the pace at which new units are delivered and the price elasticity of demand.

'In terms of rental prices EFG-Hermes expects the decline in the pace of rental rate growth observed in the first eight months of this year to be sustained into early 2008,' concluded Kapadia.