Dubai prices to continue falling until they reach 'affordable levels'

The State of the Market report concludes that prices are likely to hit the bottom during Q4 2009, and begin a gradual stabilisation going forward.

The balance of supply and demand is then expected to be reached in 2011.

It is also predicted that the emirate's population will fall in the short term, as expatriate workers leave following job losses. This will continue to switch the bargaining power of leasing in favour of tenants rather than landlords.

The report notes that although activity in the city's property market has picked up in recent weeks, access to mortgage financing will continue to be difficult as the country's banks look to find cost effective sources of funding that will cover their asset to liability imbalances.

The report does not dwell too much on doom and gloom, however. It notes that through its high profile anti-corruption drive and a raft of regulatory real estate laws, Jones Lang Lasalle has ranked Dubai as the most transparent realty market in the region.

Rental predictions

The report gathers together information from Better Homes, Dubai's Real Estate Regulatory Authority (Rera) and other sources to collate the average drop in prices for residential units up to the end of March 2009.

IB research finds that rental prices for studios, and one-, two-, and three-bedroom apartments fell by 29%, 31%, 16% and 43% respectively - with the largest drops occurring in March in all but one case.

Villa leases have fallen 44%, 35% and 28% from their peaks for three-, four- and five bedroom houses respectively.

Looking ahead, the report predicts that rental prices for properties aimed at the middle income sector are likely to keep falling until they reach a bracket of between Dhs67,500 and Dhs112,500 per year. In the higher income segment the price band varies from Dhs135,000 to Dhs225,000, all of which are still considerably below current asking prices.

The fall in asking prices for one year tenancies is linked to the decline in expatriate workers and to the increased number of new units coming online, however the number of new units is now likely to be far fewer than predicted which should help to settle the market. The Dubai Land Department estimates that 31,000 new units were expected in 2009, and 43,880 in 2010, implying that 20% and 40% respectively were likely to not be delivered due to market conditions.

The report, however, says that: 'Even fewer units will be delivered in both 2009 and 2010. We believe that 20,000 units will be delivered in 2009, 18,000 in 2010 and even fewer in 2011. Although population is expected to decrease in 2009, demand is expected to rise because of latent demand for affordable housing and from nearby emirates such as Sharjah and Ajman, and Abu Dhabi commuters who elect to live in Dubai.'

Room for sales price drop

Dubai Marina saw the highest amount of popularity in terms of sales transactions throughout 2008, closely followed by the Emirates Living district, where prices (with the exclusion of the Springs), comparative to other communities, mainly held their values.

'Off plan sales across the emirate are practically non-existent, and finished product is in demand by mostly end users, or opportunistic investors looking to acquire assets for long term yield rather than short term capital gain,' says the report.

Though sales transactions have begun to show slight increases as prices have dropped, the report forecasts that there is still considerable room for prices to drop in order to meet affordability levels.

'More than 65% of all demand...for residential sale units comes from the middle income segment. What is clear...is that, while most of the demand is driven by the middle income segment, current prices are affordable only for the upper income segment.'