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Property Prices and Rental Falls won’t be Severe in H2: CBRE

Dubai’s once-flourishing real estate sector is still far off from a recovery, although price falls are beginning to slow and hopefully, bottom out before the end of the year, CBRE said in its latest property market review.

It said Abu Dhabi’s property market which enjoys an edge over Dubai, will also be subdued, but price drops in the UAE capital will level off as more investors want to hold on to their assets due to low prices.

The global financial crisis resulted in property prices in Dubai plunging from their peak levels in 2008 by about 50 per cent, with property analysts forecasting another 20 per cent drop by year’s end. Proleads Global, a Dubai-based research company said property projects worth more than $300 billion have been on hold this year.

“We have already had huge double-digit falls in the first half, but I think declines will be limited to the single-digit level for the remaining two quarters,” Matthew Green, associate director of CBRE Middle East told Khaleej Times.

Green said he does not expect recovery in Dubai to be happening until next year, with house and rental prices coming under pressure with the new “high volume” of supply coming in across residential and commercial sectors.

“It is difficult to say categorically that the bottom will be hit by yearend, but when it does, prices and rentals will be flat for awhile. Only until prices have stabilised for a certain period can we say that a bottom was reached --- and expect the market to start picking up again.” CBRE said that in the first half, lease rates in the Dubai residential market has resulted in a sharp drop as thousands of the expatriate workforce were sent home after being laid off from work.

Traditional locations of Bur Dubai, Deira and Karama that previously enjoyed high occupany ratios, are now experiencing vacant apartments in both older and newer buildings.

The worst affected areas are the new residential districts of Al Barsha and Al Nahda. In Al Barsha, the going rate for a year’s lease for a one-bedroom apartment is at Dh60,000 to Dh65,000, compared to a high of Dh90,000 to Dh100,000 in the second quarter 
of 2008.

CBRE said the pressure on lease and occupancy rates in the second half, will be most prominent in the new residential developments such as Dubai Silicon Oasis, International Media Production Zone and Motor City.

In the commercial office market sector, supply will increase substantially in the next six months, and the majority will be from the newer business areas of Jumeriah Lake Towers, Al Barsha, TECOM, Business Bay and Dubai Silicon Oasis.

There will be less supply generated by the Dubai International Financial Centre business district.

With supply continuing to outstrip demand, competition between landlords will result in greater incentives for tenants,” said Green.

“It will still be a buyer’s market, it is a tenant’s market for now. There is far more pressure for owners to fill up their buildings. If landlords are not bringing down rents, they are offering more flexible terms.”

There is less pressure on prices and rents in Abu Dhabi despite new supply coming in, but demand will remain weak until economic activity picks up, said CBRE.

In the residential sector, “the chronic shortage” of residential products is helping to maintain unrealistic rental rates in the capital, despite falling levels across all other asset classes.

· rocel@khaleejtimes.com