The property market boom in Dubai is showing signs of overheating as investors betting on quick gains inflate prices of real estate still under construction, Standard Chartered said on Thursday.

Dubai, home to palm-shaped islands off its coast and a ski slope in the desert, kicked off a regional property boom in 2002 when it first invited foreigners to invest in properties.

Since then, regional economic growth supported by a more than six-fold rise in oil prices has attracted streams of investors into real estate in the business and trade hub.

"There are signs of excessive short-term speculative activity which is based on leverage and can prove to be destabilising," Standard Chartered said in a note.

Palm island builder Nakheel said last month prices of some units have almost tripled in two years, and Colliers International estimated property prices in Dubai rose 42 percent in the first three months of this year alone.

Off-plan properties -- referring to units that are still under construction -- are suffering from the most speculation, with the cost of such properties in many cases the same as for completed units, Standard Chartered said.

In general, completed properties should trade at a premium to unfinished properties because an owner could derive rental income. But because developers allow investors to pay as little as 10 percent of the cost of an unfinished property upfront, a speculator can buy the property and resell it shortly afterward for a substantial gain.

"It is very common to see investors taking positions in the market with the intention to flip it before further payments are due," Standard Chartered said.

"In many cases, investors have no intention whatsoever to actually own a property. Their presence in the market is simply a short-term position based on leverage in order to make a quick and substantial profit," it said.

In order to stem short-term speculation, Dubai should consider taxing properties that are bought and sold within a 12-month period or requiring higher initial down payments, Standard Chartered said. - Reuters