Dubai house prices 'set to fall 10pc more'
Dubai, July 20, 2011
Dubai's housing market still has nearly a third too much supply and prices will plummet by another 10 percent, deepening a three-year rout to nearly 60 percent from its peak, a Reuters poll showed on Wednesday.
Rents and prices in Dubai's once-booming property market have been in a free-fall over the last few years, pummelled by the global financial crisis, ensuing global slowdown and the Gulf state's own debt crisis.
Residential property prices in Dubai, which boasts of the world's tallest building and man-made islands in the shape of palms, will fall 58 percent from a peak in the third quarter of 2008 according to the median estimate of 11 banks, investment firms and research institutions.
"Despite increasing transaction volumes and improvement in economic activities, property prices in Dubai are expected to be under pressure due to oversupply," said Sajeer Babu, an analyst at National Bank of Abu Dhabi.
The findings matched those of a Reuters poll in April which showed that existing supply and additional new units would push Dubai's house prices down by 10 percent.
Global markets were rattled in 2009 when Dubai announced a $25 billion debt restructuring of conglomerate Dubai World. A real estate collapse followed, putting an end to a historic building spree in Dubai.
Confidence has not recovered yet. Respondents in the Reuters poll saw zero chance of Dubai's residential property market recovering in 2011. They gave just a 25 percent chance of recovery in 2012 and only 50-50 percent in 2013.
Only one respondent said house prices in Dubai have already reached a bottom. Three said they expected prices to reach a trough in 2011, while others said 2012 or later.
In percentage terms, the Dubai housing market crash is set to be nearly double the size of the fall in the US, which is down by about a third from its peak.
A Reuters poll in June found US home prices as measured by Standard & Poor's 20-City Composite Home Price Index are expected to fall 5.0 percent in 2011 before finding a floor.
Oversupply in Dubai remains a major problem -- 18,000 new homes expected to hit Dubai's market by year end and rents in Abu Dhabi dropping 9 percent in the second quarter, a report from property consultancy Jones Lang LaSalle said.
The United Arab Emirates -- at $298 billion the second largest Arab economy -- is seen growing by 3.7 percent this year, slightly faster than in March and well up from 1.4 percent in 2010 when it faced a debt restructuring challenge.
The overall debt burden of Dubai and its companies is now estimated at around $113 billion, or 138 percent of its gross domestic product.
Abu Dhabi, the capital of the United Arab Emirates and home to most of the country's oil had fared better during the downturn but is now facing challenges as a huge supply of high-end homes are expected to enter the market.
Still, prices in Abu Dhabi are expected to fall another 15 percent from here, or 55 percent from their peak, the median estimate showed.
"In Abu Dhabi there is actually an undersupply across the market ... in that there are more households than dwellings," said Craig Plumb, head of research at Jones Lang LaSalle Mena.
"The problem is one of pricing -- many of the households can not afford the units being offered to the market. This has resulted in there being both an undersupply (at the aggregate level) and an oversupply (of expensive units) at the same time."
The UAE federal government last month announced that it would give a three-year residency visa to property buyers in the UAE instead of the six-month visa, a move seen as an attempt to lure investors back into its struggling real estate sector.
UAE developers desperate for government support to bring back buyers, welcomed the decision. However, analysts were sceptical as the rule was only applicable for those buying property over 1 million dirhams and other conditions have not been made public yet.
"Renewed property ownership law may create short term improvement in transaction volumes by international investors but increasing vacancy rates remain a key concern for the sector in both UAE residential real estate market(s)," said Babu at National Bank of Abu Dhabi.
Rentals in Dubai will fall by five percent in 2011 and one percent next year, the median forecast showed. Abu Dhabi rentals are expected to drop 10 percent this year and two percent in 2012. - Reuters