Prices in the Gulf emirate have surged 79 per cent since the start of 2007 but confidence in the market's ability to continue to grow is weaking as shares in regional property firms start to fall.
'We expect oversupply to hit Dubai in 2009, leading to a period of price declines,' says Morgan Stanley. A worst-case scenario would be for Dubai property prices to follow the pattern of Singapore in the late 1990s when prices plunged 80 per cent in 18 months.
'While we expect these price declines to be limited to Dubai given the level of undersupply in surrounding markets, we cannot rule out a "contagion" effect on Middle East, North Africa property shares prices, as investor confidence suffers.'
According to Morgan Stanley's price index, Dubai property prices soared 25 per cent in the first half of 2008, and are up 79 per cent since the beginning of 2007.
'Prices have been driven by a combination of genuine demand, speculation and, most recently, escalating construction costs,' it says.
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