The Reuters poll said values would peak before falling at least 15 per cent as steps are taken to weed out short-term speculators.

It said property prices are likely to jump 35 per cent this year according to the median of forecasts from 10 analysts at banks, investment firms and research institutions.

Price growth will then probably slow to 8.5 per cent next year, when five of nine analysts expect prices to hit a peak after year-on-year double-digit increases since 2002.

Six of the analysts polled said prices could fall at least 15 per cent from peak to trough, including one expecting a drop of more than 30 percent.

Two foresaw no correction in prices at all and two anticipated declines of 10 per cent.

The poll also found a 32.5 per cent chance of a correction in Dubai.

Five stated the chance of a correction exceeded 50 per cent.

Last month Morgan Stanley said property prices would drop by 10 per cent by 2010 as imbalances between supply and demand are addressed.

Standard Chartered Bank also recently recommended a number of actions to cool what it described as an 'overheating' market that include preventing investors from selling within the first year of ownership, increasing down payment to 20 per cent from 10 per cent and requiring buyers to present proof of ability to pay the remaining 80 per cent of the property value.

Property prices may also be affected by the uncertainty of the granting of a residence visa upon purchase of a freehold property.

Over the last few days a number of developers have cast doubt of the automatic issue of the visa.

Part of the attraction for investing in property has been Dubai's perceived 'safe-haven' status.

Analysts broadly welcomed last week's new mortgage law but say it is not enough to deter short-term speculation.

Speculators have made substantial profits in the property boom by 'flipping' largely off-plan purchases often using leverage provided by banks.

Similarly banks and financial institutions have a large exposure to the real estate market.

Recent UAE Central Bank data stated that mortgage lending increased 33 per cent in the year to March 2008.

(By Mark T. Townsend)

© Khaleej Times 2008

 

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