Dubai house prices set for further 20% fall - survey

Dubai house prices will fall another 20 percent this year, as the former boomtown continues to suffer a sharp economic downturn, a Reuters poll showed.

Residential real estate prices in Dubai have a less than 20 percent chance of picking up before 2011, according to the median forecast of 10 analysts at banks, investment firms and research institutions.

Three of 10 forecasters said they expected prices to hit a bottom in the second half of 2009 and three predicted it would happen in the first half of 2010. One forecaster said prices would rise by 10 percent from now in 2010.

Five analysts expected prices to fall a further 20 percent or more this year and prices could fall an additional 15 percent next year before stabilising in 2011, the poll showed.

"We may see a further drop in prices as the magnitude of the problem in the sector is still high and the recovery of the sector may take some more time," said Sajeer Babu, an equity analyst at National Bank of Abu Dhabi, which participated in the June 2 to June 9 poll.

Property prices in the seaside emirate have slumped since late last year, when the global financial crisis and a drop in oil prices ended an economic boom in the Gulf Arab region.

Hundreds of billions of dollars of projects have been cancelled in the UAE, Dubai firms have laid off thousands of employees and UAE banks have been loathe to extend new mortgage loans.

More than half of the construction projects in the UAE worth $582 billion, have been put on hold, Dubai-based market research firm Proleads said in February.

Rents in Dubai are seen declining by 40 percent for the full year 2009 and a further 10 percent in 2010 before recovering in 2011, the poll showed.

While it indicated that house prices for 2009 will fall an average of 50 percent from a peak in the third quarter, it is likely that prices for off plan properties, or properties still under construction, will fall in excess of that.

Liquidity problems, job losses and additional supply to the market are expected to delay the recovery in Dubai's property sector.

"We believe a recovery is likely in late 2010 or early 2011, with this based on a series of factors which include a decline in demand for buying property," said Sana Kapadia, Vice President, equity research at EFG-Hermes in Dubai.

"Our house view is that lower or potentially negative population growth is likely to put a strain on demand," she said, adding more clarity regarding the legal framework for property ownership and greater confidence were also needed.

Dubai's population is set to fall 17 percent this year, the bank said in a report in March.

In a previous Reuters poll in March, Shuaa Capital said it expected 80,000 units of supply for the next two years.

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 jumped almost 80 percent, according to Morgan Stanley estimates.

As buying properties became more expensive, Dubai's mainly expatriate population opted to rent instead, causing prices to spiral upwards.

Three of the analysts said rents in Dubai could fall as much as 50 percent during 2009.

Meanwhile, Abu Dhabi, the UAE capital and home to most of the country's oil, has fared better during the global economic downturm.

House prices there are expected to fall 25 percent on average for the full year, with two out of eight analysts saying prices would slump as much as 45 percent.

Prices would remain flat in 2010 and pick up in 2011, the poll showed. (Reuters)

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