prices in Abu Dhabi were up 2 percent and 7 percent for both months respectively

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"Sentiment seems to be improving and sellers are now less willing to negotiate."

Advertised prices in Dubai rose 3 percent month-on-month in April and fell 1 percent in May, while prices in Abu Dhabi were up 2 percent and 7 percent for both months respectively.

Liquidity was starting to return to the market as mortgage providers raised their loan-to-value ratios and eased credit conditions, the report said.

In addition, mortgage rates were coming down as EIBOR (Emirates Interbank Offered Rate) continued to edge lower, while deposit rates were also declining. Rental yields were also still attractive, the bank said, adding that volumes were "robust".

"Foreign investors also seem to be back in the market and the majority of transactions are being conducted in cash," it said.

But the bank warned volumes could fall with the approaching summer, and, with the school year coming to an end in June and more supply coming on the market, there could be renewed price weakness.

Slumping demand would drag residential real estate prices in Dubai down between 50 and 60 percent this year from their 2008 peaks, Egyptian bank EFG-Hermes said earlier this month. The market is unlikely to recover before some time in 2011, it said. [ID:nLD853700]

HSBC said that while the long-term prospects for Abu Dhabi's Aldar Properties ALDR.AD remained "favourable", its preferred exposure was now Dubai's Emaar Properties EMAR.DU.

"Considering liquidity concerns are now subdued, improving property market fundamentals, and solid Q1 performance, we feel that Emaar's performance should be more in line with that of Aldar," the report said.

Average prices for apartments in Abu Dhabi have fallen by as much as 10 percent since the end of the first quarter, while villa prices have remained stable, property consultancy Landmark Advisory said in a separate report on Sunday

UPDATE 1-UAE property market starting to bottom out -HSBC | Industries | Financial Services & Real Estate | Reuters
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