Dubai's property market may have reached a "floor" for prime and retail assets, although the emirate will have 44,000 empty homes this year and residential prices will fall a further 15 per cent, Bank of America Merrill Lynch said in a report yesterday. The bank also predicts a prolonged lull in demand as "neither regulation nor demographics are favourable for the creation of a true end-user market and, in the near term, the cost of ownership is simply too expensive to lure potential buyers".
Dubai's property sector has been badly hit by the global financial crisis, with oversupply, low demand and financial constraints holding back recovery. "We expect average residential prices to fall by 15 per cent in 2010, following a 45 per cent decline from the third-quarter 2008 peak levels," the report said. "Even if all qualifying expatriates from Abu Dhabi and Sharjah relocated to Dubai tomorrow, we estimate that there would still be 44,000 vacant units in 2010."
Residential rents, which have fallen 50 per cent from their peak in the middle of 2008, have reached levels last seen in 2006, the report added. "Rents are likely to remain more resilient than capital values and we think they have plateaued in established neighbourhoods." Meanwhile, the number of property transactions are still between 60 per cent and 70 per cent below the 2008 peak, with Better Homes, the emirate's largest property broker, reporting an 80 per cent decline in revenues last year compared with 2008.
Analysts differ in their predictions on how property prices in Dubai will pan out or how many more homes are due to come on stream. In a report last week, Colliers International said property prices in the emirate rose an average of 2 per cent in the first quarter of this year from the same period last year. Prices are now at the level they were in early 2007, Colliers said, before surging in 2008 as speculators bought and sold off-plan, sending prices up by 43 per cent during the first three months of the year.
Colliers says there will be price fluctuations this year as 41,000 homes come on to the market. Analysts at Jones Lang Lasalle estimate prices this year will remain flat, although some areas could experience further falls of up to 30 per cent. UBS Bank also predicts prices could drop by about 30 per cent as more supply comes on stream. Meanwhile, Landmark Advisory estimates that about 2.97 million square metres of new office space will enter the market by the end of next year, compared with 3.25 million sq metres available today.
Landlords of both residential and office space have been luring long-term tenants with offers of rent-free periods. Developers moving to repossess properties from buyers who have missed their payments will add to the pressure on supply. "At this point in the market, any increase in the availability of supply for repurchase would not be a positive impact," said Ian Albert, the regional director at Colliers.
Last month, Knight Frank's Global House Price Index for the final quarter of last year showed that Dubai had moved off the bottom of a list showing the worst-performing property markets in the world. The report revealed that although property prices in Dubai were still down by 42.1 per cent compared with the same period last year, Latvia had experienced a larger decline. email@example.com