Stability begins to return in some sectors after 2008 price plunge

Dubai: Following the large decline in real estate prices since 2008, some categories of the real estate market have begun showing signs of stabilisation, the International Monetary Fund (IMF) says.

"By the end of 2011, in Dubai the hotel and retail segments and some parts of the residential market started to pick up, whereas office rents have continued to decline.

In Abu Dhabi, where the initial real estate drop was less pronounced, both commercial and residential rents have continued to decline," IMF said.

But the large oversupply and upcoming project completions continue to weigh on the sector. In Dubai, the office vacancy rate (30 per cent at end-2011) is expected to increase as large additional supply will come on stream this year.

Retail and hotel vacancy rates (20 and 25 per cent at end-2011, respectively) could stabilise as fewer new projects are in the pipeline and demand remains substantial.

In Abu Dhabi, the real estate supply and demand gap continues to widen. The office market vacancy rate (23 per cent at end 2011) is expected to grow in light of the expected large new supply.

Many projects in the residential market are also expected to come on stream. In hotels, vacancies remain at a high 35 per cent.

"A glut in the real estate sector, debt issues, greater fiscal vulnerability, spillovers from the euro area slowdown and bank deleveraging are some of the challenges in the short to medium term," Dr Giyas Gokkent, Group Chief Economist of the National Bank of Abu Dhabi, says.

Support for projects

The authorities have taken steps to help the real estate sector. In Dubai, 220 projects in early stages have been cancelled, and the Dubai Land Department has introduced initiatives to support projects that are close to completion by certifying viable projects to facilitate financing.