Opinion divided over revival of Dubai’s battered real estate market

Divided opinions on real estate in Dubai

Real estate prices in Dubai’s battered property market are bottoming out more than two years after the financial crisis sparked a slump that devastated values, according to some analysts.

Others believe there is still some way though to go before prices reach their bottom values and they could fall by up to 30% in the next two years.

‘We’ve moved on from the financial crisis, mature markets have stabilised again. Declines are slowing down, we’re getting close to the bottom of the market,’ said Saeed Hashmi, the head of valuation and advisory at Landmark Advisory said.

‘People are really looking at Dubai because there are some really good opportunities as prices have moved down,’ he added.

The latest figures show just how much values have fallen. Real estate deals fell 65% in 2010, according to property consultants Jones Lang LaSalle and a report from Deutsche Bank says prices have fallen 62% from their peak in 2008.

New supply due on the market this year is widely expected to bring prices down further and some developers are considering putting off launched. Up to 48,000 new homes will be completed in the next two years, increasing current supply by 12%, Landmark Advisory estimates.

The property brokerage though said it is seeing growing interest from foreign investors attracted to Dubai’s devalued property market. ‘From the end of last year onwards, we have seen a definite increase in interest from overseas clients,’ said Michael Michael, director of sales at Landmark Properties.

‘Such investors are mainly from countries within the GCC or Eastern Europe, indicating a growing sentiment that Dubai’s property market is now offering investors greater value for money,’ he added.

Hashmi believes that Dubai now compares favourably to global hubs such as Singapore, Hong Kong and London, offering a similar lifestyle at a cheaper cost, said Hashmi. ‘If you’re comparing Dubai to other international sectors like Hong Kong and Singapore, it’s now very cheap. They think that buying an investment now will get capital appreciation going forwards. They’re trying to buy as close as possible to the bottom of the cycle, or at the bottom of the cycle,’ he explained.

Deutsche Bank analysts though are more pessimistic and it says that although the pace of decline is slowing there is still likely to be further downward pressure on the market. ‘We do not see any improvement in fundamentals that could trigger a recovery,’ the bank said in its report.

And in a separate report it is predicted that prices are likely to decline a further 25 to 30% this year and in 2012. The gloomy prediction from investment bank Rasmala is based on the fact that there is too much supply and not enough demand.

‘We believe the UAE property sector is undergoing mid-cycle dynamics. House prices have corrected by 45 to 55% but rising oversupply could see a further 25 to 30% drop in the next two years,’ Rasmala said.

‘While supply dynamics may be somewhat different for Dubai and Abu Dhabi in terms of volumes, their demand dynamics almost mirror each other in terms of a low appetite for new housing as financing remains tight and negative equity concerns linger,’ the report added.

Industry experts have long acknowledged the oversupply problem facing Dubai. However, there is little agreement on how long it will take to clear the backlog. Mohamed Alabbar, chairman of Burj Khalifa developer Emaar Properties, said in November it would take at least 20 months for the city to absorb its surplus stock.

Chris O’Donnell, chief executive officer of debt-hit developer Nakheel, said in December that the figure was closer to three to five years.

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