Surging prices in Dubai will touch its peak in 2009, before it begins to drop by a minimum of 15 percent, as the emirate passes regulation to remove short-term speculators, say analysts.
The property prices in the residential sector of Dubai, may jump by 35 percent this year, revealed a median of predictions by 10 analysts at Banks, investment firms and research institutions.
The growth in property prices may slow to 8.5 percent next year, when prices will hit a peak, following double-digit increases year after year, ever-since Dubai opened market to foreign investments in 2002.
The Managing Director of Equity Research, Al Mal Capital, Robert McKinnon, said after four years of tremendous growth in prices, the market needs a breather. Dubai has taken some measures that are likely to tackle speculation, which will bear some impact on the market.
Six of the analysts feel that prices could drop by atleast 15 percent from peak to trough, with one of the analysts expecting a drop of more than 30 percent. Two of them foresee no correction in prices, while another two predict decline of 10 percent.
A poll by Reuters revealed that there is a possibility of 32.5 percent correction in Dubai, with one of the seven emirates in the UAE. Five of them said thechance of correction exceeded 50 percent.
In case a correction occurs, plenty of existing potential buyers will begin entering the market on more attractive prices, and thus lead to a balance in the market, said Ahmed Badr, an Equity Research Analyst, Credit Suisse in Dubai.
According to Investment Bank Morgan Stanley, speculators seeking quick gains are the main driving force behind the 79 percent surge in the housing prices in Dubai last year.
It has been recommended that the emirate introduce a capital gains tax to deter short-term investors. The Land Department in Dubai has already passed a new law that regulates off-plan property sales.
Expatriates from neighboring countries, such as Lebanon, Pakistan and Iran, who have been facing political instability, have been lured to Dubai due to its safe-haven status. There is sufficient demand to take the place of speculation, but the demand is at a different price level, said McKinnon.
However, even if the speculators leave the market, a sharp fall in prices is unlikely, as the state exerts extensive control over supply, and residential prices in Dubai are slightly overvalued. Dubai owns stakes in most major property firms, including the Burj Dubai, Nakheel, and Emaar Properties. Dubai requires about 30,000 to 35,000 new units every year to meet demand, with the population growing 7 percent each year.
The government controls the market so much that it has a major role to play on the supply side. It will not allow the market to correct, said Bikash Rout, senior financial analyst, Global Investment House.
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