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Dubai property prices set for a fall by 2010

Global investment bank Morgan Stanley said that in a worst case scenario Dubai could follow the pattern of Singapore in the late 1990s when property prices plunged 80% in 18 months. But its report points out this a 'low probability'.

However the report comes on the back of concerns from other financial institutions that the market in Dubai is in danger of overheating.

As Morgan Stanley points out prices in the Dubai property market have risen a massive 79% since the start of 2007. 'We expect oversupply to hit Dubai in 2009, leading to a period of price declines,' the report concludes.

This could have implications for other property markets in the Middle East. 'While we expect these price declines to be limited to Dubai given the level of undersupply in surrounding markets, we cannot rule out a contagion effect on Middle East and North Africa property shares prices, as investor confidence suffers,' it adds.

There is no doubt that Dubai is still booming. Economic growth supported by a six-fold rise in oil prices has attracted streams of investors. According to Morgan Stanley's price index, Dubai property prices soared 25% in the first half of 2008 showing there is no sign of cooling yet.

Prices have been driven by a combination of genuine demand, speculation and, most recently, escalating construction costs,' it said. 'For 2009, we expect prices to start coming under pressure as oversupply becomes evident. We forecast a 10% decline between 2008 and 2010,' the report continues.

A slight easing of prices in the Emirate may not impact Abu Dhabi and Qatar, whose property sectors should remain undersupplied until at least 2012.