Further slump in Dubai property prices expected after true extent of emirate’s debt is revealed

Property prices in Dubai which had been recovering in recent weeks could fall another 20 to 30% as a result of the Emirate’s massive debt problems.

Confidence in Dubai’s property market has been seriously dented by the revelation that the state owned Dubai World, parent company of master developer Nakheel, has debts of $59 billion and is urgently restructuring.

Recent talk of a recovery in the Gulf real estate market has withered virtually overnight with analysts talking about a 20 to 30% further slump in prices. This would be on top of price falls of up to 50% already experienced by the real estate market.

‘The news plays on investor psyche and house prices may slide a further 20 to 30%. There will likely be further job cuts as a result of any potential restructuring and that could directly impact population outflows and result in housing oversupply,’ said Saud Masud, head of research and senior real estate analyst for the Middle East and North Africa at UBS.

‘I think residentially there will be an impact. There will be uncertainty over liabilities for Dubai World going forward and that will impact pricing,’ said Nicolas Maclean, managing director at real estate services firm CB Richard Ellis.

‘But if you hold property in an unrelated developer, there may be only be a knock-on effect short-term,’ he added.

‘The real concern is what further provisions banks will have to make and their ability to put liquidity into the market in 2010 in terms of mortgages and development projects,’ said Colliers International regional director Ian Albert.

Egyptian Bank EFG-Hermes, however, did not rush to join the bandwagon of gloom. It said it still expects a property recovery in Dubai in late 2010. ‘Recently, it has been more local demand, not foreign demand that has been driving transaction activity. Moreover, we believe the volume of supply expected to come on stream has been over magnified,’ said Sana Kapadia, vice president of equity research at the bank in Dubai.


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