Fears of Dubai property correction

BUBBLE TOWN: Poll shows majority concerned Dubai property market is overheated. (Getty Images)

Dubai's booming real estate market is a "bubble just waiting to burst", according to almost half of respondents to the latest ArabianBusiness.com survey.

Property prices in the emirate have soared in recent years due to housing shortages and the rising cost of construction, and Egypt-based HC Securities Brokerage said on Sunday the real estate market is set to become the second most expensive in the world behind London’s exclusive West End.

Another 25% of those surveyed said the market does not offer any real long-term value and is "obviously going to decline", citing the inflow of new housing to the market.

Around 20% of respondents offered a qualified positive outlook, saying that the property boom is likely to continue, but only in certain high-end areas such as Dubai Marina.

Less than 10% of those surveyed believe the market will continue to be “everyone’s preferred place to live”.

Dubai and Abu Dhabi's inflated real estate market has been highlighted as one of the main drivers of inflation in the UAE, which was 9.3% in 2006 and is predicted to hit a 20-year high of 12% this year.

In an effort to control the market and inflation, Dubai and Abu Dhabi lowered their rent caps to 5% this year.

However, analysts have said the rent cap will do little to help control the market and only an increase in housing supply will bring down prices.

HC Securities echoed those sentiments on Sunday. The firm said the caps have done little to address surging inflation caused by rapidly increasing rents across the region, and predicted GCC rents will increase by a further 20% this year.

"If the main reason behind climbing inflation is skyrocketing rent rates, we note that limiting rent prices does not seem to have solved the problem," the firm said.

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READERS' COMMENTS

Housieprices
Posted by Leo, Dubai, United Arab Emirates on Sunday 10 February 2008 at 18:26 UAE time

It would be wonderful to see prices fall and speculators left high and dry. Good luck to the home owners who live in their homes, and those who seek to make a reasonable return on their investment.

comparison to west end
Posted by ken, Dubai on Sunday 10 February 2008 at 11:22 UAE time

Hilarious that prices are approaching London's west end. I live in a "high-end" development, the Burj Dubai complex, and let me tell you Ikea does better quality. To compares this with an area that has been around for hundreds of years is laughable and proof that a correction is coming. I just hope you are not on the wrong side of it.

Exclusive or luxurious more upmarket council estate
Posted by Rajesh Chopra, London, UK on Thursday 7 February 2008 at 22:12 UAE time

I have been going to Dubai every year since 2000 and past few year I’ve felt it’s lost it charm.

It’s become too congested. Read any paper and there are new developments released every week. There is nothing exclusive or luxurious about it? How can it been when there are literally 1000s of apartments, 3 Palm Islands... It looks like upmarket council estate. It is a bubble and it will pop, imagine trying to sell your property in 2008/09 when everyone else will try and do the same. There will be no exit strategy and owners will be stuck with the actual running cost of their apartments, instead of making a fortune. Dubai’s become very expensive - it needs a correction to bring it back to earth.

Also you cannot compare London to Dubai...

Inflation in UAE
Posted by Saeed Iqbal, Sharjah, UAE on Tuesday 5 February 2008 at 19:56 UAE time

For the last 3 years rents have caused inflation and last years its everything else e.g. food items, clothing, school fee, Gas, Petrol, Road toll. Seems like everyone is taking turns while the middle-class is suffering. It's seems like chaos. Investors are making profits ruthlessly without any consideration and the Government is playing its own game to see where it can capitalized. There are no regulations and security for middle-class. At the moment it's all in GODs hands, living through the day. 5 years back one had a choice to save or to spend, but today there is no choice. It one can manage to pay the bills, it's a success story in UAE.

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