Sections of Dubai's battered property market could show some signs of recovery in 2012 but the release of new supply coupled with wider global economic woes will seen an overall decline in prices, an Arabian Business poll found.
Well-established communities in Dubai such as Emirates Living and Downtown Burj are expected to see house prices rise by 5-10 percent, a survey of real estate analysts found. But property prices in less desirable locations such as International City and Dubailand could decline 3-10 percent, leading to a marked two-tier property market in the emirate,the poll found.
“Prime developments or locations have in the last year enjoyed some moderate price and rental appreciations and we expect this trend to continue through 2012,” one analyst said.
“For the secondary developments we expect prices and rental rates to soften further as more supply comes onto the market in 2012.”
Analysts polled said average prices in neighbouring Abu Dhabi could fall up to 10 percent amid increased supply. Analysts expect an average of 19,716 units to come on to the UAE capital's market this year.
“Prices will fall in Abu Dhabi this year in the region of 5-10 percent. The emirate is going through the same problems as Dubai did in the past,” said one analyst.
Property prices in Dubai soared after the city opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments.
From start-2007 to mid-2008, prices rallied almost 80 percent, Morgan Stanley estimates showed, with billions of dollars worth of new projects launched by local developers.
But home prices in Dubai, the Gulf property market that had the biggest reversal because of the financial crisis, have declined 60 percent in the wake of the global economic downturn.
While prices in Abu Dhabi fared better during the crisis, analysts remained concerned about the significant supply of high-end homes scheduled to enter the market.
Several Dubai-based developers have turned their sites to midmarket housing in a bid to fill the gap left by the collapse of the emirate’s housing bubble. The year ahead will see an increasing number of developers look to develop affordable housing projects but these could be hindered by the rising cost of land and declining house prices in the GCC, analysts said.
Analysts’ opinions remained split regarding what they considered the biggest challenge ahead for the UAE’s property sector. Excessive supply and the impact of Europe’s economic woes were cited as he biggest concerns, alongside a lack of clarity in Dubai’s regulatory environment.