The property market in Dubai remains weak and is unlikely to recovery strongly before the second half of 2010, according to a new report.
Demand is focused in the rental market and buyer confidence has all but disappeared as prices have fallen by up to 50% since their peak last autumn, says the report from Egyptian investment bank EFG Hermes.
Its 2009 review of the United Arab Emirates real estate and construction sectors also shows that completed properties or homes that are considered to be in a prime location currently make up the bulk of transactional activity.
Overall fallout from the global credit crisis has rocked confidence in the emirate and killed off investor demand. Prices have plummeted, particularly those for off-plan property in Dubai although Abu Dhabi property is ‘fundamentally strong’ analysts say in the report.
‘With relatively low buyers’ confidence in Dubai, together with our view that demand will continue to focus on the rental market as supply is absorbed, we do not anticipate any strong recovery in Dubai selling prices before the second half of 2010 at the earliest,’ it says.
End-user demand in Abu Dhabi, however, is expected to rise as mortgage financing is more readily available and there is still a shortage in supply compared to demand, the investment bank said.
EFG says rents in Dubai had fallen significantly more than in Abu Dhabi and a number of property owners in Dubai may be holding back from selling or renting, as they wait for better prices.
‘Over the next six to 12 months, we believe we could see a further, possibly smaller, tranche of distressed transaction activity. This may negatively impact pricing and rental trends further, and so prolong any anticipated recovery for the market,’ the report continues.
It also points out that the Abu Dhabi property market could come under pressure from falling rents in Dubai, causing a supply-demand driven correction, as residents and businesses opt for cheaper accommodation in Dubai.
The report predicts that some long term projects belonging to Aldar and Sorouh, the number one and two developers in Abu Dhabi, could be ‘scaled back in line with changing market dynamics’. Aldar, developer of the F1 circuit on the Yas Marina island in Abu Dhabi, could find debt repayment difficult in the short to medium term, the bank warned. Sorouh is likely to need further funding for projects due for delivery beyond 2011, the bank added in the report.