Property prices to peak in 2008

Property prices in Dubai look set to rise between 5% and 10% next year, according to a new report, as delays in housing projects means pent up demand remains unfulfilled. Prices will peak in the second half of 2008 when the market faces its biggest shortfall.

The EFG-Hermes report paints a better picture for house hunters in 2009 when supply will swing to the buyer's favour. The investment bank expects 64,000 units to become available in 2008 and 68,000 in 2009.

In October real estate developer Tamweel estimated that the present gap in supply to be about 20,000 units.

"We expect prices will begin declining in 2009 once supply peaks, with a cumulative decline of 15% to 20% between 2009 and 2011," EFG-Hermes said.

Prices for both villas and apartments rose 18.7% in the first 11 months of 2007, above expectations.

The EFG-Hermes report argues that the current weakness of the dirham is boosting the attractiveness of the local real estate market. However it expressed fears that the declining confidence in the real estate sector, particularly in the US and the UK, could begin to affect the UAE.

"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.

According to a HSBC report released earlier this week, the British pound also looks set for a fall. The UK has been one of the strongest markets for UAE property.

The report also highlighted problems in the commercial sector, which has seen rents rise by 40% in Dubai.

"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-Hermes noted.

The report estimates commercial occupancy rates of around 99 per cent in both old and newly-developed areas of Dubai.