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Experts fear overheating in region's property market
Soaring construction costs are threatening many projects into being delayed, which is a concern to investors and developers alike.
- By Suzanne Fenton, Staff Reporter
- Published: 23:54 March 20, 2008
- Property market in the region is in danger of becoming overstretched.
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Dubai: The property market in the region is in danger of becoming overstretched, industry officials, whose remarks were given on condition of anonymity, said at a recent conference in Dubai.
"If the costs get too high, Dubai won't be so attractive," the chief executive of a real estate project development in Oman said.
Dubai's real estate transactions were worth $18 billion in 2006, and current estimates show a staggering $158 billion is invested in the sector just in Dubai.
A Financial Times survey has said Dubai is 'at the cutting edge' of world property markets, with average property values rocketing by 150 per cent in the last two years. In contrast, the UK's property value increased by 240 per cent over ten years.
A UAE-based developer said, "There's a lot of pent-up capital looking closely at this region, but returns will be crushed based on escalating costs."
Over the last two years, Dubai has seen rental costs for premium office space more than double, with prices hitting $1,172 per square metre in some cases. In 2005, this figure was about $538.
The main driver behind Dubai's property boom is the ever-increasing population, expected to reach 1.9 million in 2010. Low-cost property, costing Dh500 per square foot, is in high demand, but owing to soaring costs of materials, investment in this sector is losing its appeal.
Soaring construction costs are threatening many projects into being delayed, which is a concern to investors and developers alike.
Some developers are even buying back their own stock as they can't afford to continue construction. A Dubai-based developer agreed that "in the last three months, there has been a marked increase in partly finished buildings being sold off."
A managing director for an international consultancy firm said, "The problem in Dubai is that there are a lot of inexperienced developers, and they are building too much, too quickly and it just can't be sustained."
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