Dubai: About 48,000 homes will come on the Dubai market in the next two years, or about 12 per cent of existing supply, according to Jesse Downs, director of research at Landmark. An influx of foreign buyers sparked a construction boom as prices rose by 79 per cent to mid-2008 from 2007 before the financial crisis caused lenders to tighten credit and speculators left the market.
"There is still no parity between supply and demand," said Paul Richard, associate director at Cluttons in Dubai, which estimates that 35,000 homes will be completed through 2012. "You're looking at a good two years" for the market to reach bottom, he said.
Craig Plumb, head of Middle East research at Jones Lang, said prices were still falling and the rate and duration of the decline would depend on the type of property. Hotels would recover first and commercial properties last, he said.
Residential values may fall as much as 20 per cent more by the end of 2012 if new homes are built, according to broker Landmark Advisory in Dubai. Cluttons, a London property consultant, and Jones Lang LaSalle, the second-largest publicly traded commercial property broker, also forecast further declines.
Predictions of an end to the slump have proven overly optimistic in the past. In May 2009, Markus Giebel, the then chief executive officer of Deyaar, said the property market would bottom out that year. In the same month, Landmark Advisory said home values may stop sliding in the fourth quarter of 2009. "Without an influx of demand from outside the country, forget about it," Cluttons' Richard said. He estimates that home prices will drop five per cent to 10 per cent by next summer.
Landmark Advisory's Downs said new properties will drive down rents, pushing values lower.
"Rents are very important because occupier demand leads investor demand," she said in an interview.
Downs predicts home prices will drop 15 per cent to 20 per cent by 2012 if the most residential buildings currently under construction go onto the market as scheduled. "If the pipeline is delayed, that will only prolong the cycle," she said. Properties won't see renewed demand "until prices come down further and buyers have greater certainty over long-term rent yields."
Price index: Monthly inflation rises
Monthly inflation in Dubai rose 0.10 per cent in November compared to October, according to the monthly inflation and Consumer Price Index (CPI) report issued by the Dubai Statistics Centre.
This rise was caused by the increase in the prices of main expenditure groups. Food groups and non-alcoholic beverages increased by 0.73 per cent due to an increase in the price of fruit by 7.99 per cent, unclassified food item groups increased by 1.57 per cent. Meat prices rose 0.38 per cent. An increase of 0.22 per cent was recorded in commodities and miscellaneous services.