Dubai property market remains 'fragile', says UBS report

ABU DHABI // Dubai property prices could drop another 30 per cent over the next 18 months and may take at least 10 years to recover to peak levels, a report by UBS says. More than a quarter of available homes in the emirate could be empty by the end of next year as the population decreases, the Swiss bank said. The report is one of the most bearish assessments yet of the property market in Dubai and follows a more upbeat view from Deutsche Bank earlier this month that indicated the market may be "bottoming out" and pointing to a recovery beginning early next year.

"We expect it will take at least a decade for property prices to return to previous peak levels and see only modest growth in real estate asset prices subsequent to the market trough in 2011," wrote Saud Masud, an analyst at UBS. Conditions in the Dubai property market remain "fragile" because of an oversupply of housing and risks associated with cancelled and delayed projects, the report said. While prices have already declined 50 per cent from their peak to Dh900 (US$254) per square foot, UBS said it expected prices to fall to between Dh600 and Dh700 per sq ft by mid-2011.

While acknowledging an increase in transactions, UBS said the biggest risks to the Dubai property market were a declining population and oversupply of homes. The population of Dubai could decrease by 8 per cent this year and another 2 per cent next year, UBS said, adding another 30,000 units of excess housing. Together with 40,000 new homes expected to come online in the next 18 months and an existing vacancy of 20,000 units, overcapacity could reach 90,000 units by 2011, the report said. "In our view, recent price increases primarily reflect artificial inventory levels caused by property owners holding back on transacting at low prices, and relatively low levels of overall transactions that render a positive inference less meaningful," the report said.

Funding for developers will also continue to be a critical concern in the next year. UBS said there was a financing gap of about $42 billion, representing 140,000 units. This will add pressure for companies to consolidate and cut back on their projects. "As the UAE real estate sector evolves and in comparison to 2008, we expect to see greater consolidation, higher provisions for non-performing loans, an increase in investor delinquencies and relatively lower end-user demand for residential and commercial property," the report said.

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