Dubai property prices to fall 10%

Dubai: Property prices in Dubai are likely to fall 10 per cent by 2010 as supply outpaces demand, but they are expected to rise in Abu Dhabi's undersupplied market, Morgan Stanley said in its latest report on Tuesday.

"For 2009, we expect prices to start coming under pressure as oversupply becomes evident [in Dubai]. We forecast a 10 per cent decline between 2008 and 2010 in our base case," said the report.

A sharp correction in Dubai's real estate sector could have a ripple effect on neighbouring countries in the Middle East, with shares of 12 regional property firms dropping an average of 35 per cent, said Morgan Stanley in a report.

"While we expect these price declines to be limited to Dubai, given the level of undersupply in surrounding markets, we cannot rule out a 'contagion' effect on the Middle East, North Africa property shares prices, as investor confidence suffers," said Morgan Stanley.

Morgan Stanley analyst Mai Attia says growth in the Menas property market will be driven mainly by Abu Dhabi and Qatar due to the undersupply of housing.

At the other extreme, oversupply is expected to hit Dubai in 2009, leading to a period of price declines, Morgan Stanley said.

However, an analyst at a leading real estate services firm, disagreed.

"No, I don't think so. You have to take into account the population growth coming. Over 40,000 units are required each year to keep up with this, in addition to the pent-up demand from those people living in Sharjah and Ajman.

"If anything, all those people living in other emirates will start coming back into Dubai.

"They [prices] are going to go higher," the analyst said, requesting anonymity.

While property prices in Dubai are predicted to drop 10 per cent by 2010, it is in Ajman that some believe will see the greatest price corrections, due to the Dh1.4 billion of infrastructure currently under construction.

The knock-on effect could be house prices going through the roof.

Less than two weeks ago, Standard Chartered had targeted "excessive" speculation as the main cause behind the rising prices. They suggested a possible remedy would be the introduction of a 50 per cent capital gains tax on properties bought and sold within 12 months.

Standard Chartered showed a premium of Dh1,950 per square feet for villas and for apartments, the price increases around Dh70 per square feet the higher the floor.

Property prices have continued increasing to the disbelief of many investors. Colliers International recently reported that prices in Dubai rocketed 42 per cent in the space of three months, between the last quarter of 2007 and the first quarter of 2008.

An overall increase of 78 per cent was recorded in a single year, between first quarter of 2007 and first quarter of 2008.

Billy Rautenbach, director of operations at Better Homes, predicts property prices in Dubai will balance out over the next couple of years.

"Certain properties will continue to increase in value and certain properties will decrease in value. The market is stabilising but we still see some areas growing month on month especially in the villa market," Rautenbach said.

Matthew Green, research manager at Cluttons UAE, says prices will not slump. Dubai's seemingly unshakeable popularity among expatriates is winning the battle over inflation fears.

Have you invested in properties in Dubai? Are you worried about reduced returns? Do you think waiting until 2010 when the prices fall would be a good time to invest? Why?

I landed in Dubai in 2006. The moment I stepped out of the airport, everyone started telling me about how I've arrived at the worst possible time - rents
Nzaar
Dubai,UAE
Posted: August 06, 2008, 12:23

My only wish is to get out of this whole middle east. We see today the flip side of economic growth. My other wish is that our home country should never borrow these ideas which is practiced here in the middle east, lest the poor masses will be pushed away from the marginal lines of poverty to absolute poverty. The richer will get rich always. The property sharks are eating away other people's wealth in an unfashioned manner calling themselves as helping "Development and Financial success" but for the few.
Shuaib
Abu Dhabi,UAE
Posted: August 06, 2008, 12:02

The same was repeated every 2-3 years. Look what happened since then! Supply doesn't come as planned due to many delays while people and new comers come. Why do they have a new terminal in the current airport? Why do they have a new airport? Both will represent 8 times current capacity, Why! People are coming! Demand comes before supply, In my opinion, prices increased due to speculations mainly from brokers, it will stabilazie (not decline) for a while then it will go up again.
Ahmed
Dubai,UAE
Posted: August 06, 2008, 09:08

The problem with Dubai is the arrogance we see in the property sector. People are expecting massive prices for property which has neither the quality nor the culture of similar property else where in the world. The market, I feel, is not affected mostly by the man in the street but by massively wealthy individuals buying up 10 at a time off plan. This creates a totally fake demand curve. Many of the towers that have been constructed purely for investment with no consideration to the end user will stand empty.
Andrew
Dubai,UAE
Posted: August 06, 2008, 08:53

I dont think people need to worry at this stage as inflow to Dubai is very high. People across the globle are still investing in future that is Dubai. Once vision will materialize i.e. waterpark, theme park, Dubai metro etc., people will see new Dubai. Projects being delayed mainly due to shortage of workers and it is rare that supply will meet the demand in the future.
Adnan
Dubai,UAE
Posted: August 06, 2008, 08:22

The properties in Dubai are going to drop but not by 2010 but expected to grow slowly by then however their will be a drop of properties by 2012 since Ajman is very much growing in free hold market besides the population of UAE is also expected to reduce due to the high inflation and people will consider other countries rather then UAE, also the value for money is decreasing that means the country is going to face extreme difficulties on their economy and thus has to bring down the prices or else suffer the unbearable losses.
ali
Dubai,UAE
Posted: August 06, 2008, 02:36