It is not just UAE home prices that are under pressure.
Mumbai property values may decline as much as 35 per cent over the next two years as record prices and high interest rates deter buyers and cause developers to slash prices to offload rising inventories, according to Liases Foras Real Estate Rating & Research.
Mumbai's residential property market will stagnate over the next couple of years until prices decline to match affordability and income levels rise, said Pankaj Kapoor, the founder of Liases Foras, a Mumbai company.
"We will see two types of correction in the market, a price correction of about 25 per cent in the next two quarters and a time correction where prices will remain flat over the next two years," Mr Kapoor said.
Rasmala Investment Bank said in a report yesterday it expected similar declines in the UAE.
Home inventory levels have climbed to 28 months in Mumbai, the highest among the six cities tracked by Liases Foras. Developers sold 252 million square feet of homes in Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Pune in the 12 months to December, while home supply was 498 million square feet, Mr Kapoor said.
Pune has the lowest inventory level, at 16 months. But that is still higher than the norm of eight months of inventory.
The forecast for a decline in property values is in line with that from Bank of America Merrill Lynch, which this week predicted a decline of up to 20 per cent over the next six months.
"As long as home loan rates remain above 10 per cent, I don't see demand coming back," Mr Kapoor said. "I don't see interest rates coming down over the next one year."
India's office segment would also be distressed for the next four years because of the huge supply created by developers across India in this asset class, Mr Kapoor said. Rents might decline between 10 per cent and 15 per cent, while capital values could drop 35 per cent.
* with Bloomberg News