Oversupply to weigh down Dubai property market

Speaking at a panel at Cityscape Dubai, Herre predicted that the recovery in the property market will be in the shape of a 'w', with another decline likely to take place in the next four months.

'You cannot decouple Dubai from the rest of the world,' he said. 'I don't believe we are going to see a quick recovery because the cuts have been too deep.'

Now that speculators are out of the Dubai property sector, it has become a supply and demand driven market, which will hurt the emirate as there is so much inventory in the pipeline.

'The amount of supply that is coming onto the market in the next few years is staggering,' he said. 'I do not feel there is enough demand to support it.'

The problem of oversupply is particularly acute in the commercial market, where the current vacancy rate in Dubai is 25%. 'With another 33 million square feet of office space coming into the market, the vacancy rates could easily go up to 50% or higher. The same I think is true in residential,' he said.

Price differentiators

In the residential market, location and quality are becoming more critical factors in determining property values. 'There will be a price distinction between good location and good quality, and bad quality and bad location, which was not the case before. Values for properties with good quality and good location have not come down as badly as those with bad quality and bad location,' he noted.

Although the Dubai market is likely to fall further, it is also well positioned to recover more quickly than other markets. 'Normally there is a time lag between the real estate cycle and the underlying economy of about 18-24 months. I see this more in the range of 12 months for Dubai,' he predicted.

'I think if you make an investment in the second half of 2010, with a time horizon of five plus years, you should be fine.'

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