Thursday, June 09, 2005

Having the power to bring down rents :: Khaleej Times Online

We learn that one of the reasons for the high rents in Sharjah is because there is not enough electricity to allow new buildings to have a power connection.
An imminent crash in rents, a fervent dream-scenario for working class residents and businessmen in Dubai and Northern Emirates, could well be a reality if some new 500 residential and commercial buildings that are ready for lease in Sharjah, get power connection.

Property agents in Sharjah hope that the release of at least 50,000 residential units into the market within a few months — when the emirate is expected to overcome an acute electricity shortage with the commissioning of new power stations — will bring about the inevitable corrective phase in an otherwise overheated rental market.
With growing demand for housing and a power connection bottleneck, apartments are scarce and rents rise - but the normal functioning of profits as an incentive for new suppliers to enter is, er, short circuited. Individual suppliers would like to expand so they could sell more at these inflated prices; at the same time the incumbent suppliers are in the fortunate position of making above normal profits without the fear of entry.

That is until the anticipated opening of new power stations. The number of units waiting to be connected may be an indication of the confidence some in the market have that the stations will be coming on line as promised. (It's probably also an indication that some builders built and then were surprised they couldn't connect.)

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