It has not been an easy year for the global real estate industry as markets in North America and Europe continue to deteriorate in the wake of last year’s credit crunch. It looked like Dubai and the rest of the Middle East would follow their lead, but instead the emirate managed to position itself as a safe haven for global investors seeking to avoid the problems in more mature markets.

The strategy appeared to be working, but Morgan Stanley now thinks otherwise. In a recent report, the investment bank predicts that Dubai property prices are likely to fall by 10 per cent by 2010, as supply outpaces demand. The report has sent shockwaves through the industry and listed real estate companies have endured a difficult week on the region’s bourses.

The reaction of investors shows that the market is not brimming with the confidence that it enjoyed one or two years ago. This is a significant change, as over the past five years there has been a perception that real estate investments cannot lose.

Any allegations of corruption involving major government-owned developers will have a negative impact on an already weakening level of market confidence.

Transparency is crucial for all markets, but is particularly important in markets that are struggling for confidence, as it reassures investors that any investment is based on sound economic fundamentals, and rules are clear and well enforced.

The current climate is not just bad news for Dubai, but for the entire region. With its reclaimed islands and record-breaking towers, the emirate has led the way with real estate development, and markets such as Abu Dhabi and Doha have followed. The worry is that the rest of the region will follow Dubai if it starts to head down rather than up.