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Dubai House Prices to Fall 37.5pc This Year: Poll

DUBAI - Dubai house prices are likely to slump 37.5 per cent on average this year, with real estate units still under construction losing half their value as the former boomtown suffers an economic downturn, a Reuters poll showed on Sunday.

Residential real estate prices in Dubai are unlikely to recover before 2011, according to the median forecast of 10 analysts at banks, investment firms and research institutions.

Prices would probably bottom out after 2010, with seven of nine forecasters saying the cost of real estate would hit a trough next year or later. Rents are set to fall by about a third this year, they said.

“We do not see any near-term recovery in the residential property market in Dubai,” said Sajeer Babu, an equity analyst at National Bank of Abu Dhabi, which participated in the March 2 to 12 poll.

“Tightening credit facilities and falling real estate prices will continue to keep buyers away from the market.”

Analysts were notably more pessimistic than they were in December, when the median predictions were for a 15-per cent decline in prices in 2009.

Four analysts in the March poll expect prices to collapse 50 per cent or more.

Dubai property prices have been under pressure since late last year, when the global financial crisis and a slump in oil prices ended an economic boom in the Gulf region.

Hundreds of billions of dollars of expansion projects have since been cancelled in the United Arab Emirates, Dubai companies have laid off thousands of employees and UAE banks have been loathe to extend new mortgage loans.

Analysts said off-plan properties would face the brunt of the price decline, with the median of six responses expecting prices to drop 50 per cent this year and 10 per cent in 2010.

Some brokers have said luxury units on the Palm Jumeirah — a man-made island shaped like a palm frond and visible from space — have fallen at least 40 per cent since the autumn.

Completed home prices could drop 30 per cent in 2009 before climbing 10.5 per cent in the next two years, the poll showed.

Slow Recovery

Even though prices have fallen sharply in Dubai, analysts still regard the market as overpriced relative to fundamentals.

“With around 80,000 units in the pipeline for the next two years, negative population growth and banks unable to lend, the 2008 price peak is not likely to be revisited for a long time,” said Roy Cherry, Shuaa Capital’s vice-president of research.

Dubai property prices had soared sharply after the emirate opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments.

From the beginning of 2007 to mid-2008, property prices soared almost 80 per cent, according to Morgan Stanley estimates. As buying properties became prohibitively expensive, Dubai’s mainly expatriate population opted to rent instead, causing prices to spiral upwards. Rents could retreat 32.5 per cent this year and 5 per cent in 2010, according to median poll responses.

Four of the analysts said rents could fall as much as 40 per cent, on average, before year-end.

Analysts said Dubai needed to clarify employment and residency rights of foreign property owners to restore confidence before buying would resume.

“A removal of the current link between employment and residency status and a clarification of the law providing for residency for expatriate purchasers... may be required to provide a floor to the market,” Jones Lang LaSalle said.