Fears are growing that Dubai's once-buoyant property market will be hit by the global liquidity crisis, as lenders in the oil-rich region become more cautious and a $13.6billion (£7.39billion) cash injection by the Central Bank of the United Arab Emirates failed to ease worries of a housing market slowdown.

The Gulf's property boom has succumbed to a reality check, according to analysts. Richard Rodriguez, the former chief executive of Emaar Properties in Dubai, said last week: “Either the pace will drop or the prices will. Both cannot be sustained in these market conditions.”

Most analysts agree that the slowdown will be gradual. Global market turmoil and negative sentiment will dent property demand in Dubai and in neighbouring, oil-rich Abu Dhabi, Credit Suisse said. Morgan Stanley has predicted a correction of at least 10 per cent by 2010. “The economic turmoil could make that worse. There's a risk of contagion if Dubai slows,” Sean Gardiner, head of MENA research at Morgan Stanley, said.

Historically, there has been only a tenuous link between Western markets and the Gulf, where the rate of growth in the past five years has reached double-digits, but the recent financial turmoil has taken its toll. “The market is feeling its way around in the dark at the moment,” Jason Goff, head of treasury sales at Emirates NBD, said. “The [UAE] Government is seeking to avoid an Asian-style crisis that saw a 50-80 per cent property slump. Instead, we're talking about 10-20 per cent.”

Rulers sought to address the loss of liquidity through the central bank, which pumped $13.6billion of emergency funding into domestic money markets this month. Some bankers suggest that the money - seen as necessary to avoid a property market slowdown - will not be enough. Local lenders are said to be continuing to scale back on credit and are becoming more selective on what they choose to fund. Some predict that the region's sovereign wealth funds could intervene domestically, propping up banks as international liquidity evaporates.

Next week, the pulse of Dubai's property market will be taken at Cityscape, a huge property exhibition at which guards usually struggle to contain unruly crowds scrambling to snap up premium real estate.

Sana Kapadia, an associate at EFG-Hermes, said that the Gulf remained a good bet for investors: “Nothing has fundamentally changed. People are still waiting on the sidelines to invest in property. A slowdown may be coming, but it hasn't happened yet.”

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