Analysts expect property prices in Dubai and Abu Dhabi to fall further

The fall in property prices in Dubai is slowing analysts are not expecting any sudden improvement in the emirate’s real estate market.

Sale prices fell 1.9% and rents were down 0.7% in January, according to figures from Deutsche Bank. ‘We still do not see any improvement in fundamentals that could trigger a recovery,’ said analysts Nabil Ahmed and Athmane Benzerroug in a note to clients.

‘The supply overhang still looms large, homebuyers still lack appetite, transaction volumes remain anemic, banks remain cautious lenders and international investors are still wary of the UAE property market,’ they added.

Some analysts believe that Dubai property prices, which have already dropped 60% since the peak of the market in 2008, are set to fall another 10% over the next two years as fresh supply floods the market.

Neighbouring Abu Dhabi is also expected to see a deteriorating market. There prices are down 45% and rents and sale prices for Abu Dhabi property will continue to fall across the board during 2011 due to heavy oversupply, according to Jones Lang LaSalle.

The property consultancy said that although there have been limited transactions for residential sales, average prices per square foot have now dropped some 45% since their peak in the second quarter of 2008.

In the last quarter rents fell by 5 to 10% and in some apartment rentals had dropped by more than 35% year on year. But it pointed out that lower rents could help to boost demand.

JLLS also said that while 5,600 units had been completed in 2010, most of this was considered low quality. More than 23,000 residential units are expected to be delivered during the course of this year.

In addition, the report stated that the dearth of top grade office space coming onto the market in the next three years would encourage a gap between rents for Grade A and Grade B rents. However, the extra supply is likely to increase office vacancy rates, which currently stand at 8.4%.

JLL warned that although several major projects are likely to come online during 2011, many of these would face delays due to market conditions.

For retail space, JLL forecast that rents will slide once new supply comes onstream, especially given the large number of malls that are expected to open this year.

With regard to hotel space, the agency warned that there was a significant disconnect between the tourism growth predicted by the Abu Dhabi Tourism Authority (ADTA) and the amount of hospitality space coming online.

‘While ADTA forecast visitor growth of 15% to 20% over the next two years, supply is expected to increase by over 40% over the same period. As the market consolidates, the location of hotel properties will have an increasing impact on performances,’ the report said.