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Mon 15 Oct 2007 08:09 PM

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Dubai rent inflation to slow in 2009

CITYSCAPE: Supply of residential space in Dubai expected to outstrip demand next year, reports say.

Supply of residential space in Dubai is expected to outstrip demand next year, leading to slower rent increases or even a fall.

Two studies, timed to coincide with the start of Cityscape Dubai today, have both concluded that more homes will hit the market next year than Dubai's growing population can absorb.

Property management specialist Asteco predicts that the property boom is likely to cool next year.

"A mismatch between supply and demand is expected to soften the Dubai residential market, impacting the high-end apartment units (by 2008)," Asteco said in a statement.

"In contrast, however, apartments catering to middle income residents are in limited supply and will continue to see high occupancy and price levels.

"In both cases a situation of oversupply is unavoidable by 2009, which will put downward pressure on prices. The extent of the oversupply situation will depend on the timeliness of deliveries," Asteco said.

A report by real estate consultancy Colliers International made similar predictions about inflation falling for residential rents due to a period of oversupply.

Commercial projects could face even tougher times.

It estimates the area available for commercial leases will more than triple to 5.6 million square metres (60.28 million square feet) from 1.6 million sq metres now.

That would start hitting office property prices as early as the third quarter of next year as rents fall, Colliers said.

The retail rental market should brace for a flood of supply. Colliers said it expected the total retail space available in Dubai to more than double to over 4 million square metres.

"Smaller and older malls are likely to experience sharp increases in vacancies coupled with downward pressure on rental rates," Colliers predicts.

The consultancy is scathing about the lack of planning by real estate companies that is leading to the expected glut of property. "Many developers have overlooked one of the most salient aspects of real estate: maximising development returns is not purely a function of building as much as possible," Colliers said.

Despite a 7 percent cap being imposed on Dubai rent increases, Asteco says that apartment rents in Dubai had increased by 25 per cent from 2005 to 2006 and by 18 per cent from 2006 to 2007.

Follow Cityscape live at www.arabianbusiness.com/cityscape_2007.

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