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Abu Dhabi: A minimum of 125,000 residential units will hit Dubai's property market between 2007 and 2009, according to a recent report by Shuaa Capital and Colliers International.
"The majority of these units is due in 2007 and 2008, where 71,800 new units will be ready for handover in 2007, and a further 43,000 units in 2008," the report said.
Last year, only 4,000 units are estimated to have been completed in high growth locations, where construction has begun. In 2009, the report estimates an additional 10,600 units will hit the market.
Meanwhile, the demand side will fall significantly short of expected supply in 2007 and 2008, unlike in recent years. Such a mismatch between supply and demand will soften the Dubai residential market.
The impact's level of intensity on the various individual residential segments will be distinct. The segment most severely affected will be that of high-end apartment units targeting high-income buyers.
By 2009, there will be a total of 77,000 units targeting high-income occupants, while the projected total demand for these units is just 36,100 for the same year.
Accordingly, the occupancy level in the high-end apartment segment will fall below 50 per cent and thus make investor objectives increasingly difficult to achieve, as they typically require average annual occupancy levels in excess of 75 per cent.
In contrast, the mid-end apartment segment is expected to maintain attractive occupancy levels, exceeding 85 per cent in 2009.
Moreover, supply-side effects of the present pace of development activity are likely to soften rents by as much as 25 per cent in certain key developments.
To put this figure into perspective, rents in Dubai have increased by an estimated average of 20-25 per cent annually since 2002.
For Abu Dhabi, the report forecasts a continued sharp shortage of supply at least up to 2009. The current occupancy levels in Abu Dhabi city are extremely high, with most areas showing full occupancy levels.
Rents in Abu Dhabi city have increased by an estimated 25 per cent annually since 2004.
Supply in high growth locations in Abu Dhabi this year is expected to be a meagre 1,100 units while the additional annual demand in the same year is projected to be 21,900.
The first large-scale deliveries in Abu Dhabi are expected to take place in 2008 when 11,000 units are slated to be handed over. However, this figure is still expected to fall short of additional demand, which is projected at 24,000.
In comparison, supply in 2009 is estimated to be 150,000 units assuming no delays in construction.
In the run up to 2009-2010 rental rates in Abu Dhabi will continue appreciating at a pace well in excess of the 7 per cent cap put in place earlier this year.
The report assumes limited compliance from landlords and delayed enforcement.
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