Real estate could fall by 20 percent by end-2012 as 48,000 homes flood market, say analysts
Dubai property prices may drop for the next two years, extending a decline in the emirate that’s already cut values by more than 60 percent since the 2008 peak.
Residential values may fall as much as 20 percent more by the end of 2012 if new homes are built as planned, according to broker Landmark Advisory in Dubai.
Cluttons, a London-based property consultant, and Jones Lang LaSalle, the second- largest publicly traded commercial property broker, also forecast further declines.
About 48,000 homes will come on to the market in the next two years, or about 12 percent of existing supply, according to Jesse Downs, director of research at Landmark. An influx of foreign buyers sparked a construction boom as prices rose by 79 percent to mid-2008 from 2007 before the financial crisis caused lenders to tighten credit and speculators left the market.
“There is still no parity between supply and demand,” said Paul Richard, associate director at Cluttons in Dubai, which estimates that 35,000 homes will be completed through 2012. “You’re looking at a good two years” for Dubai’s market to reach bottom, he said.
Craig Plumb, head of Middle East research at Jones Lang, said prices are still falling and the rate and duration of the decline will depend on the type of property. Hotels will recover first and commercial properties last, he said.
Emaar Properties, Dubai’s biggest developer and the builder of the world’s tallest tower, reported a seven percent drop in third-quarter profit, missing analyst estimates, as costs and writedowns increased.
Construction firm Arabtec Holding saw earnings slump 96 percent, while apartment and office builder Deyaar Development PJSC reported a loss. Home prices fell six percent in the quarter from the previous three months, Colliers International said on November 7.
Almost half of Dubai’s planned real estate projects, from offices to villas, were cancelled as buyers defaulted and access to funding became harder. Residents who lost their jobs had to leave the country within 30 days, causing many to abandon their cars and mortgages.
Emaar chairman Mohamed Alabbar said last month that Dubai’s market has bottomed out “without a doubt,” and “not much” new housing supply is coming on the market.
Predictions of an end to the slump have proven overly optimistic in the past. In May 2009, Markus Giebel, then the chief executive officer of Deyaar, said the property market would bottom out that year. In the same month, Landmark Advisory said home values may stop sliding in the fourth quarter of 2009.
“Without an influx of demand from outside the country, forget about it,” Cluttons’s Richard said. He estimates that home prices will drop five percent to ten percent by next summer.
Attracting foreigners became more challenging after the government changed residency rules last year. From 2002, property ownership qualified the buyer for a five-year residency visa that was easily renewed. That changed in May 2009, when new United Arab Emirates regulations cut the length of residency visas to six months and required holders to leave the country and return for renewals, paying AED2,000 ($546) per visa each time.
The law also says a property must be worth at least AED1m and be large enough to accommodate the number of people granted residency as a result. In addition, it requires the buyer to have monthly income of no less than AED10,000 as well as medical insurance.
“The visa rules have been highly damaging and definitely shattered people’s confidence,” said Ludmila Yamalova, a partner at law firm HPL Yamalova & Plewka JLT. “Many bought property just because that would enable them to live here. They had their five-year residency and built their lives around it. Now they don’t have that security.”
Service fees charged by developers for maintenance of common areas such as pools and gyms have discouraged potential buyers interested in generating rental income, Cluttons’s Richard said. The fees can cut a landlord’s return by almost half.
Landmark Advisory’s Downs said new properties will drive down rents, pushing values lower.
“Rents are very important because occupier demand leads investor demand,” she said in an interview.
Downs predicts home prices will drop 15 percent to 20 percent by 2012 if the most residential buildings currently under construction go onto the market as scheduled.
“If the pipeline is delayed, that will only prolong the cycle,” she said. Properties won’t see renewed demand “until prices come down further and buyers have greater certainty over long-term rent yields.”
Nothing will change , No Believe , No Trust , No Transparency and No hope in UAE . The real estate market in Dubai will pickup again after 10 years inshalla . End of Story .
I have put in my money in about 4 projects and none of them have even taken off the ground. my money is with the developer and they are refusing to comment let alone refund. there is no legal action as the law is with the developers. I made a wrong decision, If i would have invested half of this money in places like Singapore or India, it would have been a complete different story.
80% fall by end of 2012 and does that mean my 1 million apt. would be worth only 200K??!! Please predict accurately when and how to runaway also, it would help us common man who invested beleiving in Dubai and now living our life on negative equity paying huge amount on mortgage installments and maintenance charges. Faith, hope and optimism is the only thing that carries me forward believing that one day, even if I lose my entire money invested, i will be free of mortgage. I understand the reasons behind the predictions but at the same time hope for some genuine and realistic measures from the Govt. of Dubai to save the situation.
Spot on !
I have visited US / Europe recently and i have spoken to many investors and found that even the next generation would not think to invest in Dubai.
Faith , hope and optimisim will not do anything i'm afraid , you have at least a 10 year's wait .
This is the free market and it's just crashed and burned . Without proper regulation , transparency and cast iron governance to protect the investor it's going to be a tough time and even tougher in an economy like Dubai.
People can talk it up and speculate all they like , there will be no recovery for at least 5 years.
That is what I have been saying for the last 2 years, and you know what, I think that even 10 years is optimistic.
To all optimists, you have no idea what 2011 is going to be like. It is very clear that a new financial crisis will hit the markets in mid 2011 as there has been no positive major change made to the current system. The lesson hasn't been learned yet , and expect the unexpected, which is the worst, and I am sure that 2011 will bring about a change in most systems, including political, financial, and in our case here, real estate development. Mark my words, 2011 will be the starting point of change for the 21st century, and this century will definitely not be an "extension" to the practices of the 20th.
Mohammed, it's 80 per cent down from peak, if you bought your 1 million apartment in 2008, then yes it will be worth 200,000 according to this calculation and your loss will be 800,000! If you bought your apartment before it had gone up to the maximum price say you paid 560,00, and it reached a million then its still only worth 200,000 but you haven't lost as much money!
However, whichever way you look at it the problem is worse if you still have to pay a mortgage for the original value at between 7 and 9 per cent interest. If you paid cash then calculate what you hypothetically could have paid in rent, then you might come out even on paper!
I remember 2006-2007 most of investors believed the price will go up and my idea was different .Now i think the prices came too much down and cost of construction and land is more then the prices of market .Im sure the prices will go up not like 2007.