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Property: Failing to Find Economic Equilibrium

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Angus Taverner

Director- Global Affairs

Tag: Dubai economy United Arab Emirates
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The undertow of Dubais love affair with property continues to slow the emirates economic recovery. Repeated analyses are expressing concern at the imbalance between supply and demand in the emirates real estate sector.  And Abu Dhabi, trying to fill an earlier realty deficit, now risks finding itself in a circumstance not wholly different from Dubais.  The large construction projects in both emirates and to a lesser extent in other emirates as well, have produced an over-supply of property that is making it difficult to establish a floor under this troubled sector of the UAE's economy.
Selling prices have fallen in Dubais residential sector 60% or more on average and rental charges in most areas have drifted downward substantially as wellwhich may bode well for renters but not so for investors.  Despite construction slowdowns and cancellation of billions of dollars worth of development projects, properties continue to come online at a rate that puts a lie to predictions that real estate recovery is just around the corner. 
Dubai will have an excess of retail space particularly in its newly built shopping malls that is likely to see an estimated 1 million square meters of unrented retail space by 2013, Colliers has said.  Yet the Colliers report continues to express optimism about Dubai as a global retail platform.
Dubais overall economic recovery, in particular, remains closely tied to the fate of its property sector. So much of the emirates prevailing debt is attached to the real estate sector and an expansion that has proved not to be matched by demand, that most analysts cannot see a confident recovery in prospect until this sector starts to show some genuine bounce. Optimists may be tempted to argue that Dubais property sector is merely tracking a normal pattern in which real estate comes to health after most other sectors.   But other have warned that Dubai may have to take more assertive action to stimulate genuine recovery.  They have suggested not only halting any further property expansion but also demolishing unwanted buildings to limit the supply side, starting with out of date structures but perhaps including some of the overbuild. This may seem extreme but Australia and Singapore have pursued such a policy successfully. A risk in such action is a broader message it might send; thus it would need careful packaging and delivery. 
At the end of the day, Dubai and other emirates do need to put a floor under still falling property values in most neighborhoods and sectors.
AT 24 May 11

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