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Property over supply is a big issue for Dubai

 Yesterday this correspondent took a brief spin around the Jumeirah Palm Island. The shoreline apartments remain an attractive development, particularly those units that have a private beach.

But these residents will shortly not be alone. The apartment blocks immediately behind – the Golden Mile – as well as a collection of huge mansion blocks in the centre of the Palm will shortly add many thousands of units, more then ten thousand according to my rough calculations.

Property over supply

This is really just a metaphor for the whole construction sector in Dubai. There is a great amount of work-in-progress and the upcoming property supply is a big issue going forward.

How many of these apartments have been actually sold and paid for is unknown. Will they be left empty by absent owners? Or put onto the rental market? Or dumped onto the market to sell at any price?

These are major unknowns. But it is a different picture to most property markets around the world, except perhaps in some Chinese cities. This level of new supply is almost unprecedented.

Even the most conservative estimates suggest around 30,000 new units this year and next. And the supply is concentrated in the high-end apartment segment where demand has already weakened most.

Opportunity Dubai

The glass half-full camp will say this is going to provide a once-in-a-lifetime buying opportunity. The glass half-empty folk will predict a disaster for house prices due to over supply while admitting to a golden scenario for rentiers.

For the local banks it must mean a strain on their balance sheets as some loans to developers and contractors are bound to turn bad. On the other hand, there will be refinancing to organize and mortgages for the solvent who wish to buy discounted property.

One thing that nobody would dispute is that real estate once built can not be moved away, so Dubai has its new urban infrastructure whether or not it can afford to pay for it. In the long run that is a significant advantage over regional cities which thought about building during the oil boom but never quite got around to it.