Property prices in some parts of Dubai are likely to fall another 20% this year, according to business leaders who fear that a recovery in the real estate market is still some way off.
A meeting of the Arabian Business Think Tank (ABTT) heard that average prices for an apartment on Nakheel’s man-made island, Palm Jumeirah are predicted to fall to AED1,022 per square foot by May 2011 from current averages of AED1,200 per square foot.
ABTT members said there are major concerns about oversupply in the market and a continued unwillingness by banks to approve new mortgages.
They are just the latest to predict another gloomy year ahead in the emirate’s real estate market. Consultants Jones Lang LaSalle have voiced concerns about oversupply and said there will be no recovery until 2011 at the earliest due to an oversupply of properties.
In its report on the first quarter of 2010 it said a total of 22,000 units were expected to be completed this year and a further 25,000 units coming online in 2011, bringing the total residential stock to about 320,000 by the end of 2011.
Last month Landmark Advisory said that increased supply of residential units in some of Dubai’s most popular areas forced further rent declines in April. The property company’s April 2010 Dubai Lease Guide said Palm Jumeirah and Dubai Marina, which have performed better than other parts of the emirate during the past six months, have seen recent drops of up to 6%.
The supply demand imbalance remains a key driver of the continued negative outlook for the property industry in the Arabian Gulf, according to a new report from Moody’s Investors Service.
‘The supply demand imbalance in commercial property and to some degree in residential units, depending on the city or country, is likely to grow worse as vast supply meets slack demand and is a major driver of our negative outlook,’ said Martin Kohlhase, author of the report.
In the report, Moody’s noted that the other drivers of the outlook remain the same as in 2009, namely funding and the preservation of cash, which includes potential disposals of non-core assets, cash collection and debt standstill agreements. Moody’s said it believes that these factors will remain in place for the rest of 2010.
The rating agency also said that it has downgraded the ratings of all GCC issuers with real estate exposure over the past 12 months. However, although Moody’s industry outlook for the region as a whole is negative, it added that significant differences continued to exist across the region, with Saudi Arabia seen as the brightest spot of the six GCC countries.
‘The large, growing and young population of this Kingdom continues to support the local residential market. Furthermore, rent and sale prices have remained stable in prime areas, while limited price correction has been witnessed on the outskirts,’ said Kohlhase.
The rating agency said that several factors could prompt a revision of the outlook to stable, including government spending for public infrastructure work, government intervention, a shortage of low and middle income housing and international expansion.
‘However, we do not envisage moving to a stable outlook in the near term,’ added Kohlhase.