Dubai's suffering property sector is at risk of further price declines due to the seasonal summer and Ramadan slowdown, expatriates leaving the emirate, and oversupply, Moody's Investors Service said on Tuesday.

"Oversupply in the market is unlikely to be resolved in the next 12 months given dynamic supply-demand developments, which could result in prices remaining sluggish or falling further, albeit at a more moderate levels than over the past nine months," said Martin Kohlhase, Moody's assistant vice president and lead analyst for Emaar Properties.

Dubai's once-booming property sector has been battered since late last year when the global economic crisis and a drop in oil prices ended an economic boom in the Gulf region.

House prices are expected to drop another 20 percent in 2009, a Reuters poll showed in June.

Thousands of jobs have been slashed and a new wave of expatriates who have recenly been made redundant could leave in the near-term unless they find new jobs, Moody's said.

"Anecdotal evidence suggests that many expatriates who have been made redundant were allowed to stay until the end of the school term in June without their visas being revoked within the usual 30-day period."

Moody's said it would keep ratings for Emaar Properties and Dubai Holding under review until a planned merger between Emaar and three local property firms is finalised at the end of 2009.

Dubai Holding, owned by the ruler of the emirate, and Emaar, said in June Emaar would merge with local firms Sama Dubai, Dubai Properties and leisure developer Tatweer.

"We believe that the valuation will largely be driven by value assigned to the land bank of Dubai Holding, which may be adjusted downward to reflect Dubai's overall economic downturn over the past nine months," Kohlhase said.

Last month Moody's placed Emaar's Baa1 rating on review for downgrade while it downgraded Dubai Holding to A3 from A2, due to difficult conditions in the sector.

"If the merger ... substantially increases the direct and indirect government stake in Emaar, and thus neutralises negative rating pressure that could arise from a weaker fundamental credit profile, the ratings of Emaar could be confirmed," he said.

"In the case of higher support, this might be offset by Emaar's weaker fundamental credit profile."

Emaar's government-related stake is likely to rise substantially, Moody's said last month. The government stake is currently 31.2 percent, according to the Dubai bourse website.

The combination of Dubai Holding's property units with the more mature portfolio of Emaar likely to be "mildly supportive" for the new entity, while providing it with a large unused land bank, Kohlhase said.

The proposed new entity would have debt obligations equivalent to around 7 percent of total assets, which would be around 194 billion dirhams ($52.82 billion), Emaar said in June.-Reuters