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PROPERTY MARKET IN DUBAI ON THE BOIL?

Wednesday, 10 Sep 2008

The booming market for property in Dubai may face a drastic adjustment if it continues to hot up at its current rate. Soaring oil prices and expanding financial factors are fuelling the continued growth, causing a possible radical imbalance that may lead to a slump over the next two years when additional properties are put on the market, as scheduled.

According to Samba Financial Group’s September Economic Monitor report, the participation of banks in the Dubai property market seems to be manageable at the moment, and the practices of the Gulf property markets are not the same as the ones that have caused problems for banks in the US. Despite this, close monitoring of the property markets remains vital, especially since banks intend to assertively pursue the financing of mortgages in Dubai.

Howard Handy, chief economist and general manager of Samba Financial Group, said, "We expect Dubai's property sector will show signs of cyclical weakness in 2009-10. Such projections suffer more than usual from a lack of data and imperfect information about future demand and supply. The soaring property prices over the last five years have attracted increasing supply which will eventually exceed demand."

The Dubai Lands Department has reported that the value of all property in Dubai sold in the first half of 2008 has outstripped that which was sold last year already, although the actual value of the properties has only increased by 3% as opposed to 60% in 2007. The rapid growth of the local population and its increasing buying power, combined with an optimistic view of the expanding economy that will continued to lure foreign labour, will maintain the growing demand for Dubai accommodation. The influence of speculation buying, however, especially in off-plan properties, is the cause of growing concern.