Pent-up demand is the other great unknown about Dubai property
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Pent-up demand is the other great unknown about Dubai property

Pent-up demand is the other great unknown about Dubai property

There has been much debate recently about the actual supply of property coming up in Dubai, and some focus on true levels of demand as opposed to the levels suggested by some sellers of property. But the pent-up demand in the market is the other great unknown about Dubai real estate.

    If you look at figures from the Dubai Statistics Department, and they are available online then the population of Dubai grew by just over 100,000 in 2006 with approximately half of those people earning enough to afford mid-to-high-end accommodation.

    The general reckoning is an average of 2.5 persons per unit, which means that in 2006 Dubai needed 20,000 units of accommodation.

    However, late delivery of new units by developers meant that 2006 was a weak year for new property in Dubai, with no more than 5,000 units handed over on some estimates. Therefore Dubai was short of some 15,000 units in 2006, which put upward pressure on rentals and people squeezed into the existing accommodation somehow.

    But this also constitutes a pent-up demand for property. These 15,000 people likely still want to move to better accommodation.

    Tipping point

    Assuming that the Dubai population has continued to grow at the same rate in 2007 as in 2006 then the total demand for property would be 35,000 units, not so far short of the 50,000 units that analysts predict will be delivered this year, and with some delays perhaps the total demand and supply will therefore be in equilibrium.

    Also we have to bear in mind that not all this completed property will actually be immediately occupied. First, new owners tend to take time to move from their existing properties, typically four to six months, and landlords take a while to rent out villas and apartments.

    Second, there will be many of these units - some say half, which have been bought as second homes and for occasional use by wealthy owners. Thirdly there will be buyers who will not sell if they can not rent a property out because they paid in cash and can afford to wait without the sense of urgency of a mortgage payer.

    Crunch coming

    On the other hand, if the 139,000 units that the EFG Hermes report counted for scheduled delivery in 2008 do actually enter the market next year, the market will clearly be quickly saturated, and the soft patch predicted by this excellent report and Standard Chartered Bank among others, will come to pass.

    Real estate agents say that April was a quieter month for the sector than April last year, particularly for property sales.

    But this might not mean that Dubai's population growth is slowing, more likely potential real estate buyers are beginning to react to the series of recent reports predicting an imminent slowdown as well as just observing the massive building programs with their own eyes and asking the obvious questions about supply and demand.
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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