Even though Dubai’s rule Emir Maktoum has previously stated that the worst if over for the emirate, analysts are predicting that Dubai’s real estate market will continue to see a slump in value this year.

In the past several years, led by state property firms, Dubai has seen a construction bonanza where supply seemed to create its own demand. One state firm competed with another to erect an even more impressive high-rise. It seemed that very little consideration was made as to whether the market could support such new housing in the short-term. And as is now clear, Dubai overbuilt.

Property prices fell by 25% in the last quarter of 2008 and many expect that they fell by an additional 25% in the first quarter of 2009.

During the boom, when credit was cheap, widespread short-selling took place that created the facade of a stable real estate market. Property owners often required just 10% of the value to be placed as a down payment. So 10 pieces of property could be bought for the price of one. Short-selling then often followed with a home changing hands two or three times before construction even began.

Dubai has seemed to got the lesson that when should build in accordance with the market not in an effort to solely make headlines with lavish high-rises.

The 50% drop in housing value and the chance that it may fall further has lead to $335 billion worth of projects to be postponed. They include a planned 1 kilometer tower, the tallest in the world, that for now has been filed away. And in many sites, construction has slowed to a turtle’s pace.

What will this all mean for Dubai? The crisis should have a positive effect on future development. It was always ludicrous to think the good time would never stop. Dubai could not go on developing they way it did, it simply was too much for the short-term. But I stress short-term. Dubai is not going anywhere. The Gulf needs a harbor, and Dubai has the largest one in the world, and a financial hub. But development needs to be smart. The crisis should lead to a proper revaluation of how money is spent.

In the long-run, the property market will bounce back. And the slump in prices will allow many people whom previously could not afford such expenses housing to done do so. So a lot of the homes should not stay vacant for too long.

The emirate needed to be shaken for hubris, this is a good thing in the long term.