IndieG

To those planning to buy, this article is worth a read.

Investment bank UBS has warned of its concerns regarding the risks of a real estate "bubble" to the UAE economy and that it presents a greater threat to growth than inflation.

In its latest research report, the Swiss bank said after 2010 the realty environment could become more challenging, leading to a slowdown in Dubai and a shift of focus to the property market of Abu Dhabi.

"The [real estate] market in Dubai appears to be at risk of hitting trouble earlier and more severely than in Abu Dhabi. There is a chance that the impact of the initial phase of any Dubai real estate downturn on the UAE economy might be cushioned somewhat as the 'centre of gravity' shifts from Dubai to Abu Dhabi," it said.

"We were surprised that disregarding a sharp drop in oil prices most observers seemed to regard inflation as the biggest macroeconomic risk on the horizon, not a potential real estate bubble. Projects might end up in default and burden the banking sector and overall growth."

UBS expects about 150,000 residential units to be completed in Dubai over the next two years, bringing the market into balance some time in 2010.

"Thereafter, the housing market might well swing into oversupply," it said.

"The risk of oversupply currently appears most relevant for the high-end of the residential market, which is seeing much bigger supply growth than the mid-market segment. There are already indications that occupancy ratios in the high-end segment are markedly lower than in the mid-segment of the market."

This could have a wide reaching impact on the economy because construction and real estate sectors contribute heavily to GDP growth in the UAE about 26 per cent in 2007 as well as creating additional spillovers in other sectors, such as banking.

"We believe that any significant slowdown or even a crash in the real estate sector would likely reduce UAE growth substantially. In this case, we believe the burden on the balance sheets of banks, construction companies and developers, and of many investors and households, could be very substantial," said UBS. The bank believes that the current housing shortage in the country has triggered an extensive supply response, and "a large volume of residential real estate is expected to enter the property market in the next three years".

http://www.zawya.com/story.cfm/sidZAWYA20080424031635

Eeyore

So can we expect another engineered "amnesty" to send lots of labourers home and slow down the pace of delivery again?

IndieG

Naah - they will now blame it on rice shortages ....