By Soren Billing
UPDATE 2: UBS predicts slow recovery for sector, says prices may slip further 30%.
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.
Finally a realistic take on the property market. I think that we will see more reports that move away of saying that the market will bounce back in 6, 12 or 18 months and more reports that agree that the issue of oversupply is currently the fundamental factor in the property market.
its not the number of years that is important...it could be 1/2 /3 or 10 years...the key question is HOW/WHY should it bounce back?is anyone taking the required steps to bring in the population?is anyone bothered?are there measures being taken to make this a better place to live?are we made to feel being wanted ?(to live here? )its all interconnected somehow.....any answers?
What's the point of predicting next 10 years when no one really knows what's happening at the moment. Instead of this, I would be interested to know why prices and rentals have very slightly increased in the past 3 months?
Dubai will become like London which is really a collection of villages . Real estate prices do not move in parallel across all Boroughs of London ( SW London Fulham through Putney out to Richmond is very different from East London which is very different from South London). There is also a need to differentiate between the villa market and the apartment market in Dubai . My view is that some Dubai ' villages" will remain well bid i.e. Marina/JBR/ parts of Jumeirah/Umm Sequim while others will suffer huge over supply( anything out past Ranches, Ranches itself, Al Ain Road developments and the AL Khail Road developments heading towards Jebel Ali). There will not be parallel movements in all sectors of the real estate market in Dubai and in all areas of Dubai - markets simply do not work that way
The current global turmoil shows how human beings are weak and can not predict what is happening in 1 second so imagine 10 years. All strategies and ... turned out a bubble. Amazing how people are still dreaming of the 2007-2008 real estate mania. This will never ever happen again. Prices must drop. Dubai properties are still MUCH HIGHER than Californian and even Japan!That does not make any sense taking into account that there are only 1 million locals. Prices in Dubai MUST drop by 30%. All those injections will not help again. I strongly support HH Sheikh Mohammed who said that RS is not the only pillar of Dubai. In my humble opinion, it's one of the weakest. Dubai is thinking right nowadays concentrating on Air Industry, Ports, Green energy, Services, Tourism, etc... Those are much more sustainable than real estate. In my opinion, real estate people should just restructure smartly. This is what Dubai Holding is smartly doing. Go to new sustainable sectors!
Another so called "experts" where were u 5yrs ago? How come you where not able to predict what was gonna happen btw 2001 -2009? Nobody knows anything any more. Next week we'll hear another 'no clue company' probably saying all things are getting rosy now and we should be expecting 10/11 to be another boom time. I guaranteed You.. watch.
I'm not saying this article is excellent or otherwise but I would say that these 'predictors'...well, this one anyway...is using %'s and actual figures and is actually explaining how he/they derive their conclusions rather than presenting a glossed overview, with little or know detail. I don't know how accurate the authors figures are but at least there is some logic to his prediction. Its about time the likes of colliers, Betterhomes, CBS Richard Ellis and Landmark started to take note and started to state figures as well as %'s when they put their reports to print. At least it gives the reader the chance to challenge or agree with the commentary. I neither agree nor disagree...I haven't looked at it properly...but I do 'follow' the logic of how they derive at their predictions...something the readers can seldom do from other authors/predictors.
Oversupply isn't the only issue. The end-user secondary market demand that all the speculators seemed to bank upon to flip their properties to simply isn't there. Those who have been living here and had the means to buy have already done so if not at the peak, then when good bargains were to be had. The ones who are left are ones who either don't qualify for a mortgage (and if anything banks have become stricter with their lending criteria) or the ones who don't intend to buy here for a variety of reasons (visa issues, the transient nature of their stay in dubai etc.) Global property markets having fallen too, overseas investors can find better bargains in more established markets. So where is the demand going to come from? I agree that the recent reports by all the property agents like Colliers, Betterhomes etc who have vested interests in the markets going up is likely due to the fact that many landlords have withheld properties and refused to sell at the going rate. When their holding power will be diminished due to sustained losses incurred by way of mortgage or maintenance or vacancy and they will have to sell due to them leaving the country etc., and a further wave of supply hits the market by way of developers and large investors trying to offload properties, we will see a further fall in prices.
Yawn, yet another 'talk it up/talk it down' take on the property market that will stimulate more mindless chatter around the dinner tables and coffee shops. For every property 'owner' in Dubai there are thousands of others who who didn't jump the bandwagon (for reasons best known to themselves) and who work as teachers, engineers, in clerical jobs or as business people. It's actually they, rather than owners, developers or landlords that will transform the market, as they quietly and industriously beaver away in their chosen industries. They don't make a quick buck, shaft anyone nor cry foul when things don't go right. If you are looking at gauging the market don't turn to Landmark or Colliers or even UBS. The white van man en route from Sharjah to Jebel Ali each day is the one to watch.
Dubais property woes will have a knock off effect on Abudhabi market as well. Prices in Abudhabi will fall drastically as more people move into Dubai to take advantage of cheaper rents . Those who invested in Abudhbi (myself) will suffer. Our rights need to be protected as well. We should not be made to suffer for the mistakes of Dubai builders and developers. We invested in a stable environment in Abudhabi and will bear the brunt of Dubai's mistakes. I strongly suggest that people working in Abudhabi should be forced to live in Abudhabi or else all investors and landlords in Abudhabi will suffer.