Will supply and demand burst the Dubai real estate bubble?
Complex Made Simple

Will supply and demand burst the Dubai real estate bubble?

Will supply and demand burst the Dubai real estate bubble?

The arrival of a Korean developer and the promotion of rotating towers are surely separate symptoms of a bubble in Dubai real estate. Foreign firms are usually the last to arrive, and outlandish proposals are only taken seriously during the most bullish of times. But supply and demand is the issue of greater concern.

    Expert opinion has converged towards the view that supply will exceed demand sometime this autumn. Indeed only the endless delays in the delivery of completed units have kept putting back this evil day of reckoning.

    Investment bank EFG Hermes was the first to produce a substantial piece of research highlighting the true position with upcoming supply. Its 45-page report said 69,000 units were due to be finished in 2007 and 139,000 in 2008, albeit all these projects were subject to delays.

    The report suggested Dubai has a demand for 40,000 to 50,000 residential units per annum. But it failed to make the point observers have added since that only 30 per cent of this demand is in the luxury sector which comprises the majority of construction projects.

    Real demand levels


    This could leave the real level of annual demand for new high-end properties in Dubai at 15,000 units per annum, which was also suggested by figures forecast in a recent report on the population growth outlook until 2010 from the Dubai Chamber of Commerce and Industry.

    Now even allowing for pent-up demand and the sale of many units as second homes, this does suggest that overbuilding is on a heroic scale, with more than a decade's supply without allowing for any slowdown in the current rapid expansion of the city's population.

    Will it suddenly dawn on developers this autumn that they have got carried away and that the people to live in the apartments they are building at such speed are simply not going to be there?

    Certainly a situation where supply exceeds demand will not be something that has been seen in Dubai this century, and not since the previous overbuilding in the late 1990s which was on a far more modest scale.

    Booms go bust


    Yet as one estate agent told AME Info from a long distance away from Dubai this will happen as sure as night follows day. Real estate booms always go bust. It is just a question of when and not if it happens.

    However, there lies the dilemma. Some people thought global property looked too hot in 2000 and yet many of these real estate markets are still booming today. And it has to be said oil prices are still high in the region and there is still plenty of liquidity.

    But you could say the same about the regional stock markets and yet they got carried away with themselves and crashed. Property is just the same, and an excess of supply over demand usually means a correction.
    Author
    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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