Experts disagree on future of Dubai's property market

'The free fall is over, there has been a bottom phase that has been reached,' says Deyaar CEO Markus Giebel.

'Prices may go down a little bit more, but a 5% fluctuation is not important for the investment community. What is important to them is that prices will not fall 10%-20%. The question now is how long do we stay in the bottom and what does the recovery look like.'

Charles Neil, CFO, Landmark Properties, agrees that the worst is over, particularly with regards to villa housing. 'They have reached the bottom and are even starting to recover a bit. In the last quarter, villa prices went up about 7% and rents 6%, mainly in the three-to-four bedroom range,' he noted.

'In terms of supply, villas are expected to account for 20% of new units coming on this year, and that is going to start diminishing over the next few years,' he noted.

Surplus apartments

His outlook for the apartment sector is less optimistic. 'With apartments, there is an awful lot of supply coming online next year. We do see a surplus of about 20,000 units in 2010, going up to 60,000. However, inventory is quite low, as there are a lot people who are content to not rent them out. So the big question is going to be what happens to inventory next year. It will be hard to predict,' he said.

However, not everyone agrees that the property market in the emirate has bottomed out. JP Grobbelaar, Director, Colliers International, believes there is still a way to go before there is a substantial recovery in the market.

'We are going to see a false recovery. People are talking the market up and are very keen to see the market recover and will grab at whatever they can identify as green shoots to support their theory,' he said.

'However, I believe we are looking at further declines in rentals and property prices in the residential and office sectors. The road to recovery has got to be seen as something that will take a while.'

He believes the key problem that the Dubai market faces is the amount of supply due to come online. 'The fundamentals are not in equilibrium. The market will only recover when the fundamentals are in the right position. At this point the market is oversupplied,' he said.

Essential fundamentals

Giebel takes a more positive view of Dubai's future, saying that he believes the emirate's recovery may be similar to that in Singapore.

'In Dubai, prices have fallen 45%-50% on average, depending on location. In Singapore, they went down 45% in two and a half years, but rose 30% within one year. Dubai's fundamentals are the same as they were two years ago. It still has the largest airline, the largest ports. Any city in the region that wants to catch up with Dubai needs decades; that is not something you can do in two or three years,' he said.

Neil is more cautiously optimistic, noting that Dubai is 'a very fragmented market which has no clear picture and no clear direction'.

On the positive side, Dubai's fundamentals have the potential to change a lot more quickly than in other parts of the world, he believes. 'Prices have come down substantially, and the city has the space and the infrastructure. You also have to look at the economies in the region, they are all growing, and a lot of that wealth is going to find its way back to Dubai. It all comes back to liquidity.'

Another factor to consider is that very little property is being financed at the moment. 'When the mortgage market starts to move again, it is going to bring a lot more properties back into the affordable range in terms of financing for a lot of potential buyers. And interest rates are also expected to come down next year as well. After 2010 we see a possibility for a quick turnaround,' he said.

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