Dubai rents set to soar 26.5%

Tenants in Dubai have another two years of rocketing rental prices to look forward to before the housing market begins to subside, investment bank EFG-Hermes said on Tuesday.The cost of accommodation will soar between 10 and 15% this year and by up to 10% in 2008 before prices start to decline in 2009, the Egyptian firm said.“Supply in the residential property market is and will continue to be constrained in 2007,” Sana Kapadia, Research Analyst at EFG-Hermes, said in a statement.

“We predict that the peak year for supply will now be 2009 - meaning that the market is unlikely to see a price decline before this occurs.”

EFG-Hermes said Dubai’s real estate market has witnessed a far slower pace of completed project handovers so far in 2007, with approximately only 11,000 units of the expected 57,000 units coming on stream.

The investment banks said this has caused supply to continue to lag behind demand. This supply lag has led to revised housing unit supply forecasts for the next three to four years, with estimates of 25,000 housing units for the whole of 2007, 64,000 in 2008, and 68,000 in 2009, the firm said.

The effect of the delay in units coming on line is being compounded by population growth in Dubai.

EFG said that based on the assumption that the population of Dubai will rise to almost 1.9 million by 2010, up from 1.4 million currently, demand now calls for 45,000 to 50,000 new units per annum. The firm predicts prices will begin to fall in 2009, culminating in a decline of between 15 and 20% by 2011. However the extent of the price correction will depend on the pace at which new units are delivered, it said.

Authorities in Dubai are also pushing hard to bring down the cost of accommodation due to its affect on inflation. The UAE's inflation rate rose by a third last year to 9.3%, driven by the rising cost of accommodation.

The plummeting value of the US dollar, which the UAE and four other of the six GCC member states have their currencies pegged to, has also added to inflationary pressures by pushing up the cost of imports from places like Europe. The fall in the dollar forced Kuwait to depeg its dinar from the US currency in an effort to control inflation, and since then speculation has been rife that other GCC countries will follow suit.

The six GCC members - The UAE, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman - all pegged their currencies to the dollar in a move set to pave the way for a single GCC currency by 2010 - a deadline that the GCC is looking more and more unlikely to meet.

Speculation reached fever pitch this week following the US Federal Reserve decision to cut interest rates for the first time in more than four years, forcing a number of Gulf countries to do the same. The UAE dirham held near a 5-year high on Monday as speculation Saudi Arabia might revalue its currency, which hit a new 21-year high against the dollar on Tuesday, spilled over into other Gulf Arab oil producers that also peg their currencies to the dollar. Dirham bids were as strong as 3.6685 per dollar, the strongest since November 2002.

Source: Arabian Business