Thursday, 13 August 2009

Dubai faces homes surplus of 30,600 by end of '09

Its no wonder that Dubai residents have become sceptical of any announcement that anyone makes about anything relating to the current state of the Dubai property market. On one hand we read announcements, often from unnamed sources from various government departments or from reps from real estate agents with an obvious vesting interest, telling us that property prices are on the rise, the population of Dubai has increased over the past quarter, visitor numbers are up, hotel occupancy is 100% and everything is generally tickedy-boo. Then we read reports like the following from today's issue of
Dubai is set to have a surplus of up to 31,000 residential units mainly due to the decline in the expat population by the end of the year, according to a new report by JP Morgan.
The investment bank's study into real estate in the Middle East and North Africa region said despite a recent small pickup in transaction volumes, supply overhang in the Dubai property market would reach 28,500 units by end 2009 due to the modest economic forecast and negative population growth estimates. "Our demand supply balance is based on the difference between cumulative supply of 253,000 available by end 2008 and required units derived using average household size of 5.8 per unit and potential repossessions from mortgage defaults.
"This takes our cumulative residential supply overhang to 30,600 by end 2009, though most of the overhang is attributable to fresh supply and incremental supply from repossessed units only accounts for six per cent of the total surplus in 2009, as per our estimates."
Beyond 2009, JP Morgan feels the forecast 3.5 percent population growth for Dubai is unlikely to absorb the upcoming supply of residential units, Emirates Business reported on Thursday, citing the study.
"However, we expect the impact of this overhang will largely be felt by recently supplied and upcoming units in new and outer Dubai area, where the occupancy levels are relatively low making price recovery a slow and painful process."
The report added: "The prospect of negative population growth and slow economic recovery does paint a cautious picture for Dubai's residential market in the near to medium term, where rising demand supply surplus may hamper price recovery."
However, JP Morgan added that due to Dubai's unique status as a liberal, tax-free and business-friendly destination, the banks could not rule out surprise demand recovery from regional investors.
By contrast, the short-term supply of homes in Abu Dhabi remains fairly limited, according to the report.
"We believe that high occupancy levels are unlikely to ease from near 100 per cent any time soon." JP Morgan said.

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