HSBC sees UAE property prices rise in April, May

UAE real estate prices showed monthly gains in April and May, suggesting that the property market is bottoming out, HSBC said on Sunday.

Agreed prices in Dubai and Abu Dhabi showed a 4 percent gain in April compared to the previous month, followed by a 5 percent rise in May, according to the bank’s latest transaction survey.

“Market data from April and May show a range of positive indicators: agreed property sale prices are rising, volumes are holding up well, and banks have loosened their lending criteria,” said David Lepper, head of UAE equity research.

“However, we will not be able to discern a sustainable trend until later in 2009, and while we note these positive developments, the market as a whole is coming off a very low base, given the sharp declines since the market peak. Credit growth remains subdued, and the UAE economy still has challenges to deal with.”

A survey of brokers also confirmed that prices have started to stabilise on the back of renewed interest and sellers pulling their properties off the market or putting them up for lease, the bank said.

“Foreign investors also seem to be back in the market and the majority of transactions are being conducted in cash,” a team of analysts wrote.

Compared to their September peak, agreed prices were down 23 percent while asking prices were 65 percent lower.

Apartment prices, which account for around 85 percent of transactions, rose 9 percent in May while villa prices continued to come under pressure, falling 11 percent from the previous month.

Agreed villa prices are now down 49 percent since their September peak, compared to a 16 percent decline for apartments.

The steeper decline in villa pricing was due to a sharper upturn last year, and affordability issues following lower mortgage loan to value ratios at the nation’s lenders, HSBC said.

It cautioned that lower transaction volumes during the summer may lead to price volatility.

The end of the school year and increased supply could also lead to further pricing pressure.

HSBC’s top stock pick in the real estate sector is Emaar, which has risen 40 percent in the last three months, compared with a 62 percent rise for Abu Dhabi based developer Aldar.

“Considering liquidity concerns are now subdued, improving property market fundamentals, and a solid Q1 performance, we feel that Emaar’s performance should be more in line with that of Aldar,” the bank said.

HSBC has an overweight rating on Emaar and a target price of AED8.5.