House prices in Dubai are set to plummet another 10 percent before they stabilise, extending the pain of a historic crash, while prices in Abu Dhabi will drop another 20 percent, a Reuters poll found.
Dubai, a city featuring the world's tallest building and man-made islands in the shape of palms, will see prices plunge a total 65 percent from their late 2008 peak, according to the median estimate of 12 banks, investment and research firms.
They will fall by 5 percent in 2011 and another 1 percent in 2012, medians showed, with only a 40 percent median chance they start rising again by 2013.
The same analysts calculated prices in Abu Dhabi will fall 55 percent before they start to recover, and expect them to drop 11 percent this year and another 7 percent in 2012.
The problem remains oversupply and not enough buyers, even after such a dramatic drop in prices.
"Nearly 20,000 to 25,000 units are expected to be delivered in Dubai this year, which should pressure prices in older areas further," said Ambereen Jiwani, research analyst at Securities and Investment Company.
Social unrest in neighbouring countries will have a positive impact on the United Arab Emirates' market, all respondents said, as the country is seen as a safe haven for investors in the region.
"Regional unrest highlighted again Dubai's status as a safe harbour," said Nabil Ahmed, real estate research analyst for Deutsche Bank.
"We expect foreign money in some of these countries to be withdrawn and reinvested in Dubai. The real estate sector could benefit from this."
Dubai's real estate market is 28 percent oversupplied, which is putting pressure on the prices, a median of eight respondents showed.
"Both Abu Dhabi and Dubai are facing an aggressive deleveraging process as well as a too-ambitious number of deliveries," said Patrick Rahal, manager for asset management at The First Investor bank in Doha.
"This will lead to a demand-supply imbalances even if the current socio-political unrest in MENA may have a favourable impact on demographics."
Abu Dhabi, capital of the United Arab Emirates and home to most of the country's oil, fared better during the downturn but house prices have still fallen 55 percent since end-2008.
Residential rents in Dubai are seen falling 10 percent in 2011, and 2 percent in 2012, according to the median forecasts in the poll.
Rents in Abu Dhabi are expected to fall 13 percent more in 2011 and another 10 percent in 2012.
Rents in the capital fell 8 percent in the first quarter, signalling likely further decline this year as new supply hits the market, according to a report from property management firm Asteco.
"Rents in Abu Dhabi are expected to drop more as government housing projects such as Al Falah, Watani start delivering housing units. Delivery of units at Raha Beach and Reem Island will pressure rents on the main island in 2011," said Jiwani at Securities and Investment Company.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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