“Even if all qualifying expats from Abu Dhabi and Sharjah relocated to Dubai tomorrow, we estimate that there would still be 44,000 vacant units in 2010,” Merrill Lynch analysts said in a report.

The report, authored by Karthik Sankaran, Abdelrali El Jattari, said despite “structural hangovers and overcapacity,” the bank saw an emerging floor for prime and retail assets in Dubai.

“We expect average residential prices to fall by 15 per cent in 2010, following a 45 per cent decline from third quarter 2008 peak levels. We see a rational unwinding and market segmentation over the medium term,” they said in the report. The completion of a “significant” number of new homes in Dubai later this year will put pressure on prices after they rose two per cent in the first quarter, Colliers International said in a May 9 report.
 The pricing environment for Dubai residential real estate remained fragile, the report said. “We believe the market has ‘conquered’ the first two phases of the downcycle — the exogenous liquidity and confidence shock in the last quarter of 2008 and the second-round chain reaction in terms of 
employment contraction.”

However, the bank expects a final leg-down as the market has yet to fully price for excess inventory. “Our base case is that average residential prices will decline by 15 per cent in 2010, bottoming out at Dh850-880 per square foot compared to Dh1,022 per square foot reported by Colliers in 2009.”

Despite the 45 per cent decline in Dubai residential prices from the peak third quarter 2008 levels, capital values are back only to second quarter 2007 levels, the note said.

After a modest recovery in third quarter 2009, residential prices declined 3-4 per cent on average in first quarter of this year after a flat performance in the last 2009 last quarter, the report noted. Dubai’s residential rents have fallen almost 50 per cent from peak levels, in effect back to late 2006 levels. “Rents are likely to remain more resilient than capital values and we think they have plateaued in established neighbourhoods.”

Bank of America Merrill Lynch, Dubai currently has 330,000 residential units, 28,500 four- and five-star hotel rooms, 2.5 million square metres and 3.6 million square metres of completed retail and office space, respectively. These figures are expected to grow to 386,000 residential units, 35,000 hotel rooms, and 6.2 million square metres of office space by 2011. No additional mall space is expected for the next two years.

“We are most constructive on the retail sector which should benefit from regional consumption flows – a trend which is fairly evident in first quarter 2010. Dubai should continue to ‘punch above its weight’ in this segment regionally. Unlike the residential or commercial segments, which can be easily commoditised – space within Dubai’s supra-regional malls is seen as an asset, which explains healthy occupancy levels,” the bank’s analysts said in the report.

The bank said Emaar offers the “best visibility” among UAE developers, particularly with its “quality

mall and hospitality assets continuing to outperform” market averages. “Growth for the developer is geared to the international market, where we have less confidence.

Aldar is our preferred UAE developer. Despite its awkward position as an early stage, leveraged developer caught in the downcycle, we think substantial

negativity is priced in. We think Aldar is a cheap call option on a medium-term market recovery, with fewer 
execution risks.”

The bank analysts reinstated coverage of Emaar Properties, which opened the largest skyscraper this year in Dubai, giving the company a “neutral rating” and a 12-month share price target of Dh4.4. Emaar closed at Dh3.75 yesterday and Aldar at Dh3.77.


issacjohn@khaleejtimes.com

Dubai to see ‘44,000 vacant homes, 15pc price fall’ in 2010

Issac John

DUBAI - Residential property market in Dubai will see 44,000 vacant homes and an average price fall of 15 per cent in 2010, Bank of America Merrill Lynch said on Monday.

“Even if all qualifying expats from Abu Dhabi and Sharjah relocated to Dubai tomorrow, we estimate that there would still be 44,000 vacant units in 2010,” Merrill Lynch analysts said in a report.

The report, authored by Karthik Sankaran, Abdelrali El Jattari, said despite “structural hangovers and overcapacity,” the bank saw an emerging floor for prime and retail assets in Dubai.

“We expect average residential prices to fall by 15 per cent in 2010, following a 45 per cent decline from third quarter 2008 peak levels. We see a rational unwinding and market segmentation over the medium term,” they said in the report. The completion of a “significant” number of new homes in Dubai later this year will put pressure on prices after they rose two per cent in the first quarter, Colliers International said in a May 9 report.
 The pricing environment for Dubai residential real estate remained fragile, the report said. “We believe the market has ‘conquered’ the first two phases of the downcycle — the exogenous liquidity and confidence shock in the last quarter of 2008 and the second-round chain reaction in terms of 
employment contraction.”

However, the bank expects a final leg-down as the market has yet to fully price for excess inventory. “Our base case is that average residential prices will decline by 15 per cent in 2010, bottoming out at Dh850-880 per square foot compared to Dh1,022 per square foot reported by Colliers in 2009.”

Despite the 45 per cent decline in Dubai residential prices from the peak third quarter 2008 levels, capital values are back only to second quarter 2007 levels, the note said.

After a modest recovery in third quarter 2009, residential prices declined 3-4 per cent on average in first quarter of this year after a flat performance in the last 2009 last quarter, the report noted. Dubai’s residential rents have fallen almost 50 per cent from peak levels, in effect back to late 2006 levels. “Rents are likely to remain more resilient than capital values and we think they have plateaued in established neighbourhoods.”

Bank of America Merrill Lynch, Dubai currently has 330,000 residential units, 28,500 four- and five-star hotel rooms, 2.5 million square metres and 3.6 million square metres of completed retail and office space, respectively. These figures are expected to grow to 386,000 residential units, 35,000 hotel rooms, and 6.2 million square metres of office space by 2011. No additional mall space is expected for the next two years.

“We are most constructive on the retail sector which should benefit from regional consumption flows – a trend which is fairly evident in first quarter 2010. Dubai should continue to ‘punch above its weight’ in this segment regionally. Unlike the residential or commercial segments, which can be easily commoditised – space within Dubai’s supra-regional malls is seen as an asset, which explains healthy occupancy levels,” the bank’s analysts said in the report.

The bank said Emaar offers the “best visibility” among UAE developers, particularly with its “quality

mall and hospitality assets continuing to outperform” market averages. “Growth for the developer is geared to the international market, where we have less confidence.

Aldar is our preferred UAE developer. Despite its awkward position as an early stage, leveraged developer caught in the downcycle, we think substantial

negativity is priced in. We think Aldar is a cheap call option on a medium-term market recovery, with fewer 
execution risks.”

The bank analysts reinstated coverage of Emaar Properties, which opened the largest skyscraper this year in Dubai, giving the company a “neutral rating” and a 12-month share price target of Dh4.4. Emaar closed at Dh3.75 yesterday and Aldar at Dh3.77.


issacjohn@khaleejtimes.com