A report on Dubai's troubled residential sector has suggested that the market is experiencing the first green shoots of recovery, with real estate beginning to stabilise, following a devastating period for the market.
The Dubai residential real estate market is showing signs of renewed confidence as transactional value remained stable between Q1 2009 and Q2 2009 according to US-based property consultant Jones Lang LaSalle's Mena's Q2 2009 Dubai Residential Market Snapshot.
While average asking prices have continued to fall - by around 24% in Q2 from 30% to 50% in the first quarter - the rate of decline in achieved prices has been lower at just -6%, resulting in a convergence between asking and achieved prices.
This has been complemented by a lower rate of rental decline than in previous months, with the average rent for two bedroom apartments falling by 15% in Q2, compared with a 22% decline in Q1 2009, according to the report.
Signs of stabilisation
It is estimated that 22,400 residential units are expected to be handed over in 2009, in spite of over $24bn worth of residential projects being put on hold or cancelled.
Demand remained stable with little change between Q1 2009 and Q2 2009, compared to the 58% annual decrease between Q2 2008 and Q2 2009.
Craig Plumb, head of research at Jones Lang LaSalle Mena added: 'The stabilisation of transactional volumes is an important indicator, which reflects improved confidence among investors. The narrowing gap between asking prices and achieved prices is a further indication that the market is beginning to stabilise, albeit at significantly lower levels of pricing than those seen earlier in the year.
'While there have been a large number of projects delayed or cancelled, there remains a significant level of new supply, with around 22,400 residential units expected to be completed across Dubai in 2009.'
The report's findings come on the heels of a report by the Dubai-based Landmark Advisory which revealed less flattering figures for the rental market. In its report published earlier this month, it revealed the average rents for villas has dropped by 42% from the peak of Q3 2008 to the second quarter 2009.
In just the second quarter of 2009, average rents in Dubai declined by 23% to Dhs129,900 while average villa rents fell by 19% to Dhs220,350.
Dubai's construction sector has been among the worst affected by the global slowdown, with a sizeable number of high-profile projects being cancelled or delayed as finance streams dry up.
Developer Emaar Properties announced that it had made a loss of Dhs1.3bn ($530m) during the second quarter of this year. Most of the losses came from the developer's decision to write down Dhs1.7bn of losses made by its US-subsidiary John Laing Homes.
In June, Emaar announced it was in talks with Dubai Holding to merge the two real estate businesses: Emaar, Dubai Properties, Sama Dubai and Tatweer.
Mohammed al-Gergawi, chairman of Dubai Holdings said: 'Consolidating these three companies with Emaar is a natural progression in the evolution of the Dubai real estate landscape, providing benefits to all stakeholders...The combined entity has a clear and concise strategy, better positioning Dubai as a world leading hub in real estate development and management.'
A tentative timeline has estimated a completion of the merger by October 2009, following legal and financial due diligence, and approval by regulatory authorities and Emaar shareholders.
In January, the SR2bn ($534m) Dubai Towers Jeddah project was put on hold as the developer, Sama Dubai reined in its development plans, which included the Jumeirah Hills development, which is planned for the site of the existing police academy next to interchange 4 on Sheikh Zayed Road. The status of another scheme, Falcon Island - which involves building a man-made island near the Burj al-Arab hotel - remains unclear.