Dubai's Construction Delays Raise Home Prices, EFG-Hermes Says

By Arif Sharif

Sept. 21 (Bloomberg) -- Delays in building homes in Dubai due to a shortage of contractors, scarcity of construction materials and cost increases are helping raise property prices in the emirate, EFG-Hermes Holding SAE said in a report today.

Dubai residential property prices jumped 14.4 percent so far this year, EFG-Hermes estimates, versus its expectations of a 5-to-10 percent rise for 2008. Prices rose 18.9 percent in 2007 compared with its forecast of a 10-15 percent gain.

The supply of new property ``came short of our expectations for a fourth year,'' Sana Kapadia, an analyst at Egypt's biggest publicly-traded investment bank, said in an e- mailed report. ``The supply of new units remains a key determinant of the timing of a potential correction.''

The constraints have halted construction of some projects and stalled the start of others, and EFG-Hermes' expectations of a delivery of 64,000 housing units in 2008 is unlikely to be met, the report said. Supply is expected to peak in the first half of 2009, when 70,000 units will be delivered, it added.

The diversion of liquidity from Dubai to Abu Dhabi, the spread of weaker global economic conditions in emerging markets and the declining affordability of property are some of the risk factors that could cause the price correction to deepen, EFG-Hermes warned.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net