Property developers expect strong demand to boost real estate prices further in Dubai in the next two years but bankers warn the market has peaked amid a construction boom.
Developers have turned large swathes of Dubai into a 24-hour construction site to cash in on the real estate frenzy that began in 2002 after the Dubai became the first to allow foreigners to own real estate in this wealthy region.
Dubai's robust economy and high standard of living attract at least 120,000 new residents a year, which has helped the property market double in the last three years.
Realtors said foreigners, mainly Britons looking for a home in a tax-free, sun-drenched city, are also driving prices up. But bankers said there is so much construction going on that the market will soon be oversupplied.
'Property prices have gone up across the Gulf, but Dubai has been the market leader,' Steve Brice, senior economist at Standard Chartered in Dubai said.
'In Dubai you have very significant population growth and housing has been behind the curve. We believe that over the next 12 to 24 months, supply will get ahead of that curve.'
Dubai, part of the UAE, is the region's business hub. Dwindling oil resources have spurred the emirate to diversify its economy, mainly in real estate and tourism.
Last month, the central bank governor warned that asset prices -- mainly real estate and shares -- were rising sharply and predicted a downturn in the property market next year.
But Dubai's real estate giant Emaar Properties, spearheading the building drive, said demand for housing in the emirate would remain strong.
'The real estate market in Dubai is on a high-growth curve, driven by huge customer demand. The upward trend looks set to continue as more and more people choose to make Dubai their home,' a company spokesman said.
'We see the demand for property continuing to increase in the medium-to-long term,' he said, declining to give figures.
Real estate agents also predicted prices to increase by between 11 per cent and 14 per cent within the next two years.
'We're currently expecting about a 10 percent per annum increase...10 percent is a very healthy rise,' Ian Hollingdale, office manager of Key2Dubai, said.
Real estate agents said rents -- already up to 25 per cent higher this year -- will rise further due to delays on many developments.
'There are a lot of people coming into Dubai and they are looking for ready properties, but because properties aren't ready, whatever is existing appreciates,' said Anshul Bhalla, marketing manager of Dubai Property Investment.
Comparisons with the UK market are inevitable, given that up to 100,000 Britons live in Dubai out of a population of some 1.4 million. Many more visit every year on holiday.
The average house price in London is about 269,059 pounds ($469,000) and Dubai is relatively cheap by comparison.
For about Dh1.2 million ($326,800), investors can buy a three-bedroom villa in a sprawling, suburban compound.
'It's always going to be British buyers as one of the mainstays,' said Brian Scudder at Oryx Real Estate. 'They're looking for new destinations and Dubai fits that very well.'
'A lot of commentators have recently predicted a serial slowdown and I think that was daft because it was a summer lull -- but this month has gone berserk both from residents in Dubai and the UK market.'