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Mon 1 Dec 2008 11:25 AM

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Property correction sooner, steeper than anticipated

EFG-Hermes still sees 20% correction in Dubai market, but fall sooner than expected.

The correction in Dubai's real estate market will come sooner and be steeper than anticipated as demand falls amid the global financial crisis, EFG-Hermes said on Sunday.

The Egyptian investment bank said it still anticipated a 20 percent correction in Dubai real estate prices by 2011, but that the fall would come sooner than previously thought.

"While EFG's forecast is still for a 20 percent decline, this has now become very front-end loaded and with risks significantly skewed to the downside," analyst Raj Madha said in a research note on UAE banks.

The financial crisis has hit demand for real estate in Dubai from foreign investors, which make up the large proportion of buyers, while tightening liquidity has made home financing much more difficult.

HSBC said in a report last month that property prices in Dubai fell for the first time on record between September and October, declining four percent.

Added to this, Madha said a glut of new properties expected to come onto the market could be harder for the market to absorb if immigration fell as companies cut jobs amid the crisis.

“We are currently seeing significant distress in the property sector, resulting in several major developers cutting headcount," he said.

"As for financial services, we expect that with the local index declining over 60 percent, there will be less revenue to go around, and therefore less revenue to justify the current staffing requirement."

Dubai-owned developer Nakheel and US bank Morgan Stanley said on Sunday they were cutting around 15 percent of their workforces in the emirate.

Dubai-based developers Damac Holding, Omniyat and Tameer Holding Investment have also announced large-scale layoffs.

However, Madha said new properties coming onto the market could see rents decline, meaning Dubai would be better placed to market itself to industries that have increasingly been priced out of the market.

Madha remained upbeat on the medium- to long-term prospects of the emirate's real estate market.

"While the problems in the sector are manifest, we believe that with well-targeted policy decisions, and a sharp reduction in prices, these problems could be relatively short-lived," he said.

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Paul King 11 years ago

We should welcome this death spiral in the Real Estate market. You don't want market's to function properly all the time. People will always do foolish things and then have to pay the price! Mr. Market is telling us that the property in Dubai is just too expensive and it will continue to fall until he says otherwise.

DG 11 years ago

The wise folks will now rent to live in UAE. There is little point renting to own as is being touted by many developers

omar 11 years ago

The correction will be no less than 50%. I highly praise the Saudi bank Samba for its sept report warning of a sharp correction. Even 50% is not enough. In order Dubai becomes competitive, prices MUST drop by 70%. Can you imagine a 1 bedroom apt rental is higher than top cities in US & Europe?No more easy selling my friends. Real estate agents MUST make exceptional efforts to sell a property. At the end, property is a property not a piece of cake to sell! The correction is indeed healthier to Dubai. Hope will be by 70% though and not only 50%. 1bed apt should be for 100,000$, 2 bedroom 150,000, 3 bed 200,000$$, villa 300,000$ onwards. Are you underestimating these amounts my friends. You can buy real houses in the US & Europe with such money my friends.

Malek Tabech 11 years ago

I saw when people went from poor to rich in this country in a matter of weeks, i saw the rich getting poor agian in a matter of weeks. Although real estate prices are dropping, we need to back this emirate up with action and words, since its weakining means our weakining as well. I believe that there is a very wise man running the show who will show us how he will turn everything around in a matter of days...

AK 11 years ago

WHAT GOES UP! MUST COME DOWN...Realistically speaking, a corrections of about 50-60% in some areas and 30-40% for master developers.

Mahfoudh 11 years ago

I noticed that a lot of reports talk about corrective retreat in prices of residential units, what about current rent levels? Does it make sense for a small family living in Dubai to rent a small 2-bedroom apartment for 100,000 derhams or more? what added value does it give to them? I believe that there will be a correction in unit prices and rents simultaneously, since a big drop in the price of residential units without reduction in rental costs would magnify cap rates, while they should be lower.