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The Dubai housing market anticipated that thousands of new units would hit the market by mid-2008. Analysts expected that the additional supply would cause the Dubai housing market to soften. However, the construction industry has experienced delays caused by shortages and price increases in materials and labour. Now predictions of a more stable correction in the Dubai housing market have been revised to after 2009. In view of the current situation, EFG-Hermes forecasts that prices in Dubai's housing market will rise 10-15 per cent this year and 5-10 per cent next year, peaking in the second half of 2008.

"As a result of the immensity of this boom, and supply coming on slower than expected, we won't have the same correction as forecast," said Philip Khoury, EFG-Hermes' head of research.

In contrast to EFG-Hermes forecasts of an eventual correction, real estate agents and other industry players insist that new supply will not have a significant impact on the Dubai housing market. Dubai's 1.4m population is projected to grow at eight per cent a year. An economic boom is bringing in large numbers of expatriates to the Emirate, placing huge pressure on Dubai's housing market. Right now there is a big inventory problem and Dubai's housing market cannot cope with demand. The Dubai housing market has a supply deficit of about 50,000 housing units a year. Many believe that new supply will simply be swallowed up by the market leaving only a marginal impact on prices. Inflation in construction materials will also impact the Dubai housing market. Despite government subsidies, the cost of construction has risen significantly causing a further upward trend in prices.

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