UAE property market on 'road to recovery'

The research consultancy's latest report outlines the key trends that it expects will play the biggest role in the country's property sector in 2011. Among the factors that are likely to boost the market this year include some $45bn worth of transport infrastructure projects that are in the pipeline in the UAE. This investment will stimulate growth, create jobs, and boost demand for good quality real estate in the country, the report noted.

The UAE's property market will also get a lift from the political unrest that has arisen across the Middle East. "The recent events in the Middle East will reinforce the UAE's position as a regional hub," said Jesse Downs, JLL's director of management consulting. "The region is still important and people will still do business in the Middle East, and the UAE is an optimal place from which to build your business and house your employees."

However, although investor interest in the UAE property market is growing, transaction volumes are still sluggish and are expected to remain subdued in 2011, the report noted. With mortgage availability improving, economic uncertainty and job security will emerge as the primary causes of low transaction volumes.

The shortage of investment grade properties at realistic prices also will constrain transaction activity, the report said. While projected new supply for 2011 will be lower than previously expected for the residential market, average prices are expected to continue to decline in both Dubai and Abu Dhabi. However, sale prices are expected to stabilise for selected assets in specific locations.

UAE rental markets diverge

While rental markets will increasingly move in favour of the tenant, the markets in Dubai and Abu Dhabi are at different points in their real estate cycles, the report noted. In Dubai, rents continue to fall, but the rate of decline is shrinking and there are strong indications that many segments are approaching the bottom. In contrast, rents in Abu Dhabi are expected to continue to decline in the year ahead, the report noted.

"We do see some positive trends," Downs said. "Mortgage availability is improving and transactions have risen compared to last year, and while it is not an overwhelming jump, it is a positive indicator, which is very encouraging."

Landmark Properties also said in a report last week that it has seen an increase in investor interest in the UAE' property market, specifically from overseas investors looking for property within Dubai."Although the market is still relatively immature in terms of large institutional overseas investors, Dubai now seems to be back on the agenda for many parties," said Saeed Hashmi, head of valuation and advisory, "In comparison to mature western markets, investment property in Dubai attracts much higher equivalent yields, i.e. a 9%+ for prime property, albeit under differing terms," he added.

Bank forecasts 25%-30% house price drop

On the other hand, investment bank Rasmala recently issued a more pessimistic report in which it predicted that home prices in the UAE could fall significantly further before bottoming out.

"We believe the UAE property sector is undergoing mid-cycle dynamics; house prices have corrected by 45%-55%, but rising oversupply could see a further 25%-30% drop in the next two years," Rasmala said.

The market will be hurt by "depopulation risk, deleveraging and heavy pipeline-delivery schedules leading to demand-supply imbalances", analysts said. The bank also said it believes the property market in Dubai is more attractive than Abu Dhabi. "In our view, Dubai offers broader available property options at relatively lower price points," it said.

Although Abu Dhabi does not have the same oversupply issues as Dubai, "in terms of volumes, their demand dynamics almost mirror each other: a low appetite for new housing as financing remains tight and negative equity concerns linger", Rasmala said.