Property prices in the emirate dived 42 percent in Q1 2009, according to Colliers.

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To buy or not to buy?

Dubai’s five-year real estate boom has finally run out of steam. Anil Bhoyrul looks at where prices are headed amid growing project delays and cancellations.

Andrew Partridge has spent the last six months trying to buy a new house in Dubai. He has spoken to hundreds of estate agents, brokers and so-called ‘experts’, trying to gauge whether prices have bottomed out. “The only thing I know for sure is that nobody knows anything for sure,” he says.

The Dubai-based financial services manager is not alone. Like Partridge, thousands of people living in the emirate have been tempted this year to take the plunge, and give up renting for owning. The spectacular crash in house prices, estimated at 50 percent this year alone, has made buying affordable again.
But while property prices may have fallen, take up hasn’t been great. Most buyers are asking the same question: how low can prices go?

“I saw a three-bedroom apartment in the Palm Jumeirah for AED2m ($544,000), which was going for AED4.2m ($1.1m) this time last year. I can afford it, but the problem is that if prices fell another 10 percent, my new home would only be worth AED1.8m ($490,000). It might take five years for me to get back to the buying price. It’s a risk, it’s a gamble, and I’m not sure what to do,” he says.

Views from the experts

Like Partridge, most potential investors have scoured the endless reports published on a near weekly basis, but even these only seem to add to the confusion.

In August, international property adviser, Jones Lang LaSalle (JLL), issued a report stating that prices in Dubai had plunged 49 percent since the third quarter last year, with rents tumbling 35 percent in the same period. While values fell 24 percent in the second quarter, the rate of decline slowed, with the gap narrowing between asking and achieved prices.

Rents also fell less sharply in the second quarter, the report added. The average rent for a two-bedroom apartment fell by 15 percent in the second quarter, compared to 22 percent in the first three months of the year.

Some 22,400 residential units are expected to be handed over in 2009, in spite of over $24bn worth of residential projects being put on hold or cancelled, JLL said in the report.

On the demand front, transactional volume remained stable between Q1 and Q2 in comparison to the 58 percent decrease between Q2 2008 and Q2 2009.

Craig Plumb, head of research at Jones Lang LaSalle MENA, says: “The stabilisation of transactional volumes is an important indicator, which reflects improved confidence among real estate investors. The narrowing gap between asking prices and achieved prices is a further indication that the real estate market is beginning to stabilise, albeit at significantly lower levels of pricing than those seen earlier in the year.

“While there have been a large number of projects delayed or cancelled, there remains a significant level of new supply, with around 22,400 residential units expected to be completed across Dubai in 2009.”

Meanwhile, the rate of decline in Dubai house prices slowed in the second quarter with values falling 9 percent, international real estate advisors, Colliers International, said in its August report. The real estate consultancy put the housing market’s better performance down to a 50 percent increase in transactions from April to June and a slight easing of mortgage availability.

However, it said financing still remained tight and cited expatriate job losses and lack of transparency from developers over project delays and cancellations for the 9 percent drop in the second quarter.

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