DUBAI // Dubai's property market is likely to face further price falls and increased concerns over the availabilty of finance after the emirate said it would delay debt payment issued by two of its flagship firms, analysts said. Dubai rocked the financial world on Nov 25 when it said it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its palm-shaped islands, to agree to a standsill on billions of dollars of debt as a first-step to restructuring.
"The news plays on investor psyche and house prices may slide a further 20-30 percent earlier than our existing view of second half of 2011," said Saud Masud, UBS' head of research and senior real estate analyst, Middle East and North Africa. "There may likely be further job cuts as a result of any potential restructuring, and that could directly impact population outflows and result in housing oversupply."
State-run Dubai World had $59 billion of liabilities as of August, a large proportion of Dubai's total debt of $80bn and repayment of Nakheel's $3.5bn worth of Islamic bonds, which were originally due to mature on Dec. 14, was widely expected by the market to be met. "I think residentially there will be an impact. There will be uncertainty over liabilities for that group going forward and that will impact pricing," said Nicolas Maclean, managing director at real estate services firm CB Richard Ellis.
"But if you hold property in an unrelated developer, there may be only be a knock-on effect short-term," he added. A number of reports published by analysts recently have suggested that conditions in Dubai's real estate, where prices have fallen some 50 percent since their peaks last year, were improving. Colliers International said in a report earlier in November house prices rose 7 percent in the third quarter, posting their first rise in a year.
"The real concern is what further provisions banks will have to make and their ability to put liquidity into the market in 2010, in terms of mortgages and development projects," the firm's regional director Ian Albert said, adding the increase in activity in the third quarter was substantially brought about by the availability of liquidity returning to the market. EFG-Hermes however said it kept to its forecast of a recovery in house prices in late 2010. "Recently, it has been more local demand, not foreign demand that has been driving transaction activity. Moreover, we believe the volume of supply expected to come on stream has been over magnified," said Sana Kapadia, vice president of equity research at the bank in Dubai.
EFG expects on average 20,000 new homes between now and 2012, with actual supply delivered to be toned downwards, given the slowdown in construction and underlying liquidity issues, Kapadia added. *Reuters