Residential property prices in Dubai are set to fall another 10% before they reach bottom as the emirate has too much supply, according to a new poll.
Dubai’s housing market still has nearly a third too much supply and prices will plummet as a result, the Reuters poll shows.
That will mean prices will have fallen by almost 60% since the economic downturn affected Dubai’s real estate market in 2008.
Prices in Dubai, which boasts of the world’s tallest building and man made islands in the shape of palms, will fall 58% from a peak in the third quarter of 2008 according to the median estimate of 11 banks, investment firms and research institutions who took part in the poll.
‘Despite increasing transaction volumes and improvement in economic activities, property prices in Dubai are expected to be under pressure due to oversupply,’ said Sajeer Babu, an analyst at National Bank of Abu Dhabi.
Global markets were rattled in 2009 when Dubai announced a $25 billion debt restructuring of conglomerate Dubai World. A real estate collapse followed, putting an end to the construction spree in Dubai.
Confidence is some way off recovery. Poll respondents saw zero chance of Dubai’s residential property market recovering in 2011. They gave just a 25% chance of recovery in 2012 and only 50% for 2013.
Only one respondent said house prices in Dubai have already reached a bottom. Three said they expected prices to reach a trough in 2011, while others said 2012 or later.
In percentage terms, the Dubai housing market crash is set to be nearly double the size of the fall in the US, which is down by about a third from its peak.
Oversupply in Dubai remains a major problem. Some 18,000 new homes expected to hit Dubai’s market by the end of the year according to property consultancy Jones Lang LaSalle.
Neighboring Abu Dhabi, the capital of the United Arab Emirates and home to most of the country’s oil, had fared better during the downturn but is now facing challenges with a huge supply of high end homes that are expected to enter the market.
Prices in Abu Dhabi are expected to fall another 15% taking them 55% from their peak, the median estimate showed. However, it has different problems according to Craig Plumb, head of research at Jones Lang LaSalle MENA.
‘In Abu Dhabi there is actually an undersupply across the market in that there are more households than dwellings. The problem is one of pricing. Many of the households cannot afford the units being offered to the market. This has resulted in there being both an undersupply at the aggregate level and an oversupply of expensive units at the same time,’ he explained.
The UAE federal government last month announced that it would give a three year residency visa to property buyers in the UAE instead of the six month visa, a move seen as an attempt to lure investors back into its struggling real estate sector. Nevertheless, there are conditions attached such as a minimum investment of AED1 million.
Rents are also expected to fall by 5% in Dubai in 2011 and by 1% in 20102 while in Dubai, the projected figures are 10% this year and 2% next year.