House prices in Dubai are likely to fall almost 28 per cent from a peak earlier this year as a sharp downturn in demand puts the brakes on a six-year property boom in the desert emirate, a Reuters survey showed on Thursday.

Residential real estate prices in Dubai - home to islands in the shape of palm trees and the world map, as well as a ski slope in the desert - are set to decline 15 per cent next year, according to the median forecast of seven analysts at banks, investment firms and research institutions.

Six of the analysts think the peak in prices in Dubai has already been reached, possibly as early as June - well before the $1.5 billion Atlantis hotel, located on a palm-shaped island visible from space, was opened last month with spectacular fireworks and A-list celebrities to ensure global publicity.

From the peak, prices could fall 27.5 per cent, including a 17.5 per cent drop from their levels now, according to median forecasts in the survey, conducted between November 23 and December 3.

Three analysts said the correction from peak to trough would be 30 percent or more, with one expecting a drop of 55 percent. "There are hardly any buyers at the moment," said Bikash Rout, senior financial analyst at Global Investment House.

The most acute pressure will be on real estate still under construction, known as off-plan, as speculators seek to sell properties urgently during a global credit crisis that has left many buyers struggling to get mortgage loans, analysts said.

"Off-plan properties will take the maximum hit. The entire sector was geared for expatriates, so when employers cut jobs, the demand projections get tossed out," Rout said.

House prices in Dubai have soared since 2002, when the emirate opened up to foreign investors by offering freehold ownership in designated areas, including on the Palm Jumeirah.

Colliers International said this week prices had surged 80 per cent in the third quarter compared with the year earlier. But quarter-on-quarter price growth has slowed sharply, from 43 per cent in the first quarter to 5 per cent in the third.

"In the first half of 2009, there is likely to be an oversupply of residential units," said Fabio Scacciavillani, director of microeconomics and statistics at the Dubai International Financial Centre.

Tough times

Forecasters have become much more cautious than they were in August, when the median predictions were for a 35 percent gain in prices this year and a rise of 8.5 per cent in 2009.

Since then, the global financial crisis intensified, oil prices tumbled and credit markets froze - putting the brakes on an economic boom in the Gulf region. Analysts now expect Dubai housing prices to round off 2008 with a rise of 15 percent.

Developers - most of which are owned partly or wholly by the state - are scrambling to scale back projects and cutting jobs due to the global financial crisis.

Palm Island mastermind Nakheel said on Sunday it had slashed 500 jobs. Most forecasters said house prices were overvalued and would take more than a year to stabilise, as buyers re-enter the market to take advantage of bargains.

"The problem is aggravated by the fact that the development mix is heavily in favour of high-end units, which fall well beyond the means of the majority of the population," said Roy Cherry, vice-president of research for real estate and construction at Shuaa Capital.

"That is even before we consider the growing scarcity of mortgages in the current environment, a drop in GDP growth and growing job insecurity."

Emirates NBD, the Gulf region's largest bank by assets, halted retail lending to foreigners employed by top Dubai property firms on fears a slowdown could jeopardise their jobs.

But analysts said the market for existing units is still healthy because of an acute shortage of residential units.

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