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Tue 5 Feb 2008 11:42 AM

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Fears of Dubai property correction

Emirates booming real estate market offers no real long-term value, according to latest survey.

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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