Dubai property prices 'to fall 10% by 2010'

PROPERTY PRICES: will fall in Dubai by 10% by 2010, according to Morgan Stanley. (Getty Images)

Dubai property prices, which have surged 79 percent since the start of 2007, are likely to fall 10 percent by 2010 as supply of real estate units outpaces demand in the Gulf emirate, Morgan Stanley said on Tuesday.

A sharper correction in Dubai's real estate sector could have a ripple effect on its neighbours in the Middle East, with shares of 12 regional property firms dropping an average 35 percent, Morgan Stanley said in a research note.

In a worst-case scenario, Dubai property prices would follow the pattern of Singapore in the late 1990s, when real estate prices plunged 80 percent in 18 months, Morgan Stanley said, calling this a "low probability event". "We expect oversupply to hit Dubai in 2009, leading to a period of price declines," Morgan Stanley said.

"While we expect these price declines to be limited to Dubai given the level of undersupply in surrounding markets, we cannot rule out a 'contagion' effect on Middle East, North Africa property shares prices, as investor confidence suffers."

The bank initiated coverage of 12 Middle East property firms, including the region's largest by market value, Emaar Properties, whose shares trade more than 100 percent below Morgan Stanley's 21.4 dirham ($5.83) target price.

Home to man-made palm-shaped islands and an indoor ski slope in the desert, Dubai kicked off a regional property boom in 2002 when it first invited foreigners to invest in real estate.

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

Last month, Standard Chartered Bank said Dubai was overheating because speculators were inflating prices of real estate still under construction. It recommended the emirate introduce a capital gains tax to deter short-term investors.

According to Morgan Stanley's price index, Dubai property prices soared 25 percent in the first half of 2008, and are up 79 percent since the beginning of 2007.

"Prices have been driven by a combination of genuine demand, speculation and, most recently, escalating construction costs," it said.

"For 2009, we expect prices to start coming under pressure as oversupply becomes evident. We forecast a 10-percent decline between 2008 and 2010 in our base case."

Some developers in Dubai are trying to weed out short-term investors.

Palm island developer Nakheel is requiring buyers at its Trump International Hotel to wait a year before they can sell their units on the secondary market, UAE daily The National reported on Tuesday.

While Dubai is the "bellwether" for the Gulf property market, slight easing of prices in the emirate may not impact Abu Dhabi and Qatar, whose property sectors should remain undersupplied until at least 2012, Morgan Stanley added. (Reuters)

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READERS' COMMENTS

Lots of experts, no proper results
Posted by GA on Wednesday 13 August 2008 at 21:50 UAE time

I like George Watkinson statement, it is true the prices here for prime property is way below other major cities. I actually failed to see the analogy Trojan is trying to draw, it is good for to know that he read and understood the "black swan" by nic taleb!

The real estate market is a total different science, it has a longer investment cycle, a so called "Black Swan" event does not necessarily mean armageddon to the whole property market. If you look in the US amid this whole subprime mortgage crisis, you will note that property prices in major downtown areas like New York, Chicago, LA and others are still holding up. The statement about the rental yields falling is also a joke statement, it is actually the opposite of what Trojan is suggesting. This is the rental market now in the US. A guy whose mortgage jumped from 2k to 3k and can not afford it anymore will rent a property whose initial rent was 1k and now it is 2k. Where do you think all the people who lose their houses go? Mexico!

Going back to the topic in question, I would not rely on that report by Morgan Stanley for the following reason, the issue is not a simple demand and supply equation, it more about other forces affecting the market such availability of funds, increasing population, emergence of a major economic sector (tourism) are any of these factors in the report. Just think about it people, New Jebel Ali airport, over 8 major theme parks at Dubailand, about 27000 hotel room in Al Bawadi and a lot more, who do you think is going to run them? People will be flocking into this country and demand will always exist, there will be a point of equilibrium and in some instances corrections when supply outstrips demand. But not the dark picture MS has drawn.

Dubai property prices to fall 10% by 2010
Posted by George Watkinson-Yull, La Massana, Andorra on Wednesday 13 August 2008 at 19:29 UAE time

Having just purchased a flat in London for my daughter I realise how ridiculous low priced prime property is in Dubai. I consider myself very lucky to have purchased property in Dubai. The market is far from overheating currently in my opinion .

It's the London market which needs a correction now not Dubai.

Morgan Stanley - Predictions
Posted by jc, london on Tuesday 12 August 2008 at 20:44 UAE time


You only have to take a look at the credit problems created by banks like Morgan Stanley to wonder whether they know anything at all!

Geography and Math
Posted by Trojan on Thursday 7 August 2008 at 11:53 UAE time


Good point Aadil, thanks for correcting Sid's geography. Seems the math is a little off too. As you mentioned Sid, delivery was 18 months overdue, so you got your apartment at probably '06 prices. That delay has to be factored in. Now try to do the same thing for an apartment you buy at TODAY's prices, even in Ajman.

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