Friday, Dec 07, 2007

Gulf News

Dubai: Dubai's real estate prices are not likely to stabilise in the next five years if the rent cap is not lifted and the government does not implement measures to add supply to the market, experts said on Thursday.

A study of the real estate sector by the Dubai Chamber of Commerce and Industry (DCCI)Dubai Chamber of Commerce and Industry (DCCI) revealed supply and demand of real estate will reach equilibrium only in 2023, provided the government does not interfere or impose new policies.

"Equilibrium is when demand equals supply, and prices do not increase any more - they remain steady," said Dr. Belaid Rettab, director of DCCIDCCI's Data Management and Business Research.

Rettab said imposing a rent cap will only delay the process of stabilising the market, so it is not the best solution to address price hikes. "As supporters of a liberal business environment, we prefer not to have rent caps," he said.

"The simplest solution to preventing price hikes is to add supply to the market. The government has to support the development of the mortgage sector, and at the same time provide finance facilities to developers so they can build more. That will allow injections in the supply side of real estate," Rettab said.

The government can play a major role in diversifying the supply of residential and commercial properties by introducing more financial incentives to encourage developers to "focus more on a particular sector", Rettab added.

"It could as well provide long-term guarantees for the revenues. So the government could develop different measures to manipulate the supply and demand," he said.

The DCCIDCCI study revealed that real estate prices have increased by a cumulative annual growth rate of 10 per cent in the medium term.

The long term increase was four per cent, which translates into an average price increase of seven per cent, which is equivalent to the current rent cap imposed by the Dubai government.

The study revealed that government policies that positively influence population, income, cost and availability of financing, buyers' tastes and preferences, and the buyers speculation about the future prices will contribute to the increase in demand.

The increase in supply will be determined by the cost of production inputs, financing, construction technology and expectation of future demand.

By Cleofe Maceda

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