When the high demand and low supply is also factored in, the inflation potential is enormous.
With so many companies investing in UAE's neighbours, it is easy to forget that the United Arab Emirates continues to experience their own real estate and property market boom. The coming year looks relatively unchanged from the last few years as far as growth and price increases. However, there is a considerable difference currently driving up housing prices in major cities such as Dubai. The usual culprits of material shortages, increased wages, and a slight housing supply shortage are fuelling a market that many are predicting will see prices reaching their peaks.
Dubai, in particular, where housing is in short supply, presents a clear example of developers passing on high construction costs to the buyers. According to EFG-Hermes analyst Sana Kapadia, "Taking both cost and demand pressures together, we now believe that both off-plan and secondary market prices will rise significantly higher in 2008 than our previous expectation of 5-10%."
While many analysts share Kapadia's perspective regarding the coming year, others such as those at Omniya are confident that the property market will stabilise once the housing supply currently in the pipeline, comes online in 2009. For many investors, 2008 is simply going to be a year of high prices that cannot be avoided. Construction costs continue to rise and the residential construction is completing on schedule or slightly behind projected timelines.
The materials and labour shortages have caused construction costs rise an average of 30% over the past 12 months. This fact coupled with the influx of new firms is creating an even more competitive market. Renters may be the ones who benefit this coming year with rental price inflation moving in a negative fashion. More investors are purchasing properties with the intention of renting, and the rental supply has slowly been increasing and is projected to continue throughout the year. This sentiment was echoed by economist Monica Malek for EFG-Hermes, "Because of negative real interest rates, people are buying houses for investment purposes which adds to rental supply."
