Dubai's rampant property market looks set to slow but population growth, government intervention and strong outside investment in the oil-backed economy should limit any price declines.

All eyes are on the booming emirate, where property prices are up 79 percent since the beginning of 2007 according to Morgan Stanley, to see if it will follow the slump now facing UK and US as real estate markets.

'The good news for Dubai is that you have underlying economic strength and as a result our base case reflects a soft landing for the emirate,' said Sean Gardiner, head of Mena research at Morgan Stanley.

In July, Standard Chartered said the property boom in Dubai was showing signs of overheating as investors hoping for quick gains inflate prices of real estate still under construction. But numerous studies support the argument that Dubai can weather any downturn, thanks not least to the fact that developers controlled by the Dubai government are able to manage the supply of new units coming to market.

The government is likely to intervene to prevent a price crash that would dent its efforts to develop the emirate, which has been transformed over the past few decades from an economy based on trade, fishing and pearling, into a financial centre and tourist hub.

'Control of supply is one of the most effective measures...the three big developers Nakheel, Dubai Properties and Emaar and other government or government controlled entities account for two thirds of supply,' said Sana Kapadia, equity research associate at EFG-Hermes.

EFG-Hermes said in a recent report it expected prices to peak in the first half of 2009 (the peak year of supply) and decline in the second half of the year with a cumulative decline of 15-20 percent by 2011.

In contrast British and US residential property values are down around 10 percent in just the last year, according to recent industry data.

EFG-Hermes said development delays could push the peak year of supply to 2010 and that any increase in the pace and timing of a correction may result from negative sentiment, a potential transfer of liquidity from the real estate to the equity markets and a reduction in foreign demand.

Dubai-based Union Properties said the expected oversupply would not be across all market segments with offices, villas and low-rise apartments likely to continue being in demand post 2009.

Union Properties chief financial officer Ziad Ghoul told Reuters he expected to see an oversupply in high rise apartments in the second quarter of 2009.

Price declines in that sector could be between 10 to 15 percent, he said. Property services firm Asteco said supply would lag demand until the end of 2010 for residential properties and even longer for the commercial sector.

'Prices at the end of 2010 will be leveling and I think they will stay there. I don't see why they will drop because the demand will continue,' Asteco managing director Andrew Chambers said. 'Its steady as you go.'

In a recent report Prime Research cited 'robust demographic and economic indicators' behind price rises across the board over the next two years, adding 'on average these will prove more moderate than has been witnessed over the past few years'.

In any event, there is always the possibility the government will step in to control supply and prevent a property crash. 'They can't let the real estate sector fall too much because there is nothing else that supports the GDP as much,' said an analyst who did not want to be named. 'There is a lot of political willingness.'

Source: Trade Arabia News