Dubai property market 'may take 10 years to rebound'

Wednesday, 18 November 2009 12:39 PM

Dubai property prices could fall by up to 30 percent from current levels, and it may take a decade for prices to return to peak levels, UBS said on Wednesday.

Despite real estate prices in the city having tumbled more than 50 percent from their 2008 peaks, the investment bank sees another 20 to 30 percent potential decline, analyst Saud Masud said, citing continued population outflows and the amount of supply set to hit the market.

Dubai’s residential property market may be 25 percent oversupplied by the end of next year, he said.

“We expect it will take at least a decade for property prices to return to previous peak levels, and see only modest growth in real estate asset prices subsequent to the market trough in 2011,” Masud said.

UBS reiterated its view that the emirate’s population will shrink by 8 percent this year and by 2 percent next year, based on the assumption that nearly 50 percent of the workforce is employed in real estate or construction, where it said 70 percent of all projects have been delayed or cancelled.

This would lead to 30,000 further units of excess residential housing, to which 40,000 will be added during the next 12 to 18 months as more supply comes on stream.

Adding an existing 20,000 vacant units, total overcapacity could reach 90,000, or 28 percent, in the period.

Recent price increases were mainly due to owners keeping their properties off the market and low transaction volumes, he added.

Between 2001 and 2008, Dubai house prices rose 1.5 times faster than real GDP.

Should GDP growth slow to 6 percent per year in the 10 years after 2011, and “generously” assuming that house prices still grow at the same pace relative to GDP, this would lead to annual growth of 9 percent in real estate prices, Masud said.

That would not be enough to take them back to peak levels of AED1,850 ($503) per square foot in Q4 last year, over a ten-year period.

Real estate and construction stocks have most likely troughed, but a surge in aggregate non-performing loans (NPLs) at UAE banks will limit their upside potential in 2010, UBS said.

The bank said it believes NPL rates in the country are understated and that they may peak at 5.5 times their current reported value of AED27.8 billion ($7.6 billion).

Job creation would be key to boosting Dubai’s economic growth and, consequently, real estate values, Masud said.

“This will be a complex issue as the Emirate redefines itself over the coming years and finds new growth levers outside the property sector, through commerce, education, banking, tourism and healthcare,” he said.

Earlier this month Colliers said that Dubai real estate prices rose 7 percent in Q3.

HC Securities & Investment had previously said they rose 9 percent since April.

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Posted by: Francisco Fernandes Sunday, 22 November 2009 1:39 PM[UAE] - UAE

People cannot predict the next hour or the next day what will happen in this age. And prediction after prediction are being published by Arabianbusiness.com which only influences minds which are not stable. How can one say like this when we see so many things are improving and the construction sector is picking up with all the cranes in dubai flying in the air once again. Therefore it is better we should ignore unreliable predictions or comments which tend to make confusion in the minds of the people and put a fright in the most weakest. Dont we have anything which can be published which can boast confidence in the business community and improve morale and security among the working class.

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Posted by: Andy Ramz Saturday, 21 November 2009 11:28 AM[UAE] - UAE

For a bounce back, one has to hope that the property investors and financers will develop a very weak memory power. Considering the outrageous acts of escapism and un-accountability displayed by the esteemed developers (well aided by the poor legal system and uncaring enforcement agencies), it might take even longer than 10 years. That?s the supply side. From the demand side, we just have to hope that Govt will implement pro-business and pro-expat economic stimulants. As of now, one gets a feeling that the expat work force is being treated as a liability rather than national asset. If 80% of the population is expat, managing it productively should be UAE's core competence. If one tries to kill the golden goose, one should not entertain fancy ideas of bounce back and boom time. It is a natural tendency for humans to move to regions and areas which are friendlier and conducive for all-round growth. I do hope that the best of Dubai is yet to come.

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Posted by: V.Gomes Friday, 20 November 2009 7:41 AM[UAE] - UAE

Analyst Saud Masud forgot to mention the vague and everchanging property ownership and visa situation in U.A.E. This is one of the main reasons for lack of consumer confidence that has set into this regions property market. Visa for ownership has gone from 3-year renuable visas to 6-month renuable with conditions. Some masterdevelopers are not even entertaining the thought of visa sponsorship for property owners. Taking into consideration investor confidence levels internationally, I would say recovery back to peak levels would take 10 to 15 years, CONSIDERING that the Government wakes up and gets serious about proverty investment and visa laws. Investor horror stories are still raging around the world and in UAE. People in this part of the world are used to geting or taking without giving. Well, they will need to reasize in order to take a little you need to give a little - be it investment visas; transparenty in the property sector; etc.

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Posted by: Mark Brown Friday, 20 November 2009 5:21 AM[UAE]

Well done JohnA, you've nicely listed some empty villa's. Was trying to point out a possitive trend in Dubai (and the region for that matter) but you got hung up on the details. If you think I'm an estate agent (which I'm not, worse, I'm a banker and responsible for the crisis), than you must be a correspondent for an English newspaper, i.e. forget the big picture and focus on crummy details that allow for sensational story writing (Dubai is doomed!)

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Posted by: Wildwine Thursday, 19 November 2009 1:49 PM[UAE]

Who cares about these analysts! As usual real estate crowd will insist that eveything is fine and rubbish anything that is not their way!!! Reality: NO ONE KNOWS WHAT IS GOING TO HAPPEN!

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