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Dubai faces prospect of over 30,000 empty homes by end 2009, says JP Morgan
Source: BI-ME , Author: BI-ME staff
Posted: Thu August 13, 2009 12:04 pm
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UAE. Dubai may have 30,600 vacant homes by the end of the year as new supply comes to market and the population shrinks, while Abu Dhabi faces a shortage of 28,000 residential units, Emirates Business reported citing a report on Mena real estate by investment bank JP Morgan.

"Our demand supply balance is based on the difference between cumulative supply of 253,000 available by end 2008 and required units derived using average household size of 5.8 per unit and potential repossessions from mortgage defaults.

"This takes our cumulative residential supply overhang to 30,600 by end 2009, though most of the overhang is attributable to fresh supply and incremental supply from repossessed units only accounts for six per cent of the total surplus in 2009, as per our estimates," JP Morgan said.

The report said that beyond 2009, the forecast of 3.5% population growth for Dubai is unlikely to absorb the new supply of residential units.

"However, we expect the impact of this overhang will largely be felt by recently supplied and upcoming units in new and outer Dubai area, where the occupancy levels are relatively low making price recovery a slow and painful process."

The prospect of negative population growth and slow economic recovery does paint a cautious picture for Dubai's residential marketin the near to medium term, where rising demand supply surplus may hamper price recovery.

The report added, "we believe Dubai's growth is also underpinned by its very large infrastructure investment and the city's positioning, which makes it accessible to neighbouring economies, some of them facing economic and security challenges. This, we believe, is due to Dubai's unique status as a liberal, tax-free and business-friendly destination. Hence, we do not rule out surprise demand recovery from regional investors, who are exposed to less stable geo-political environments and welcome the stability of the UAE."

“In the short term, we expect the non-residential sector in the UAE to remain under pressure given the global financial crisis. However, the historical shortage of both retail and commercial space in Abu Dhabi has kept falls in leasing rates well below Dubai," the investment bank noted.

JP MOrgan said the short-term supply in Abu Dhabi remains fairly limited, and it expects that high occupancy levels are unlikely to ease from near 100% any time soon.

"In contrast, we expect upcoming handover/release of office space in Dubai International Financial Centre, Business Bay and other areas in 2009 to push vacancy rates into double-digits given relatively weak demand and the already high levels of office stock per capita in Dubai," JP Morgan said.

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