A report by HSBC's global research division has found that property prices in Dubai may be bottoming out and beginning a slow recovery, although sector professionals have made more muted predictions.
HSBC's property market survey has found that agreed prices in April rose by 4%, and by a further 5% in May.
Though the bank highlights the increase, the May figures are still 23% below the September 2008 peak level.
'Our market testing confirms that prices have indeed started to stabilize due to renewed interest as well as some sellers re-pricing, pulling their properties off the market, or putting them up for lease,' says the report.
'Foreign investors also seem to be back in the market and the majority of transactions are being conducted in cash.'
The turn around is attributed to the fact that prices are coming off a very low base, that liquidity is beginning to return, that yields remain attractive, and that sentiment in the market is improving. However, the report underlines that it is only apartment prices that have begun to increase – villa prices are down a further 11% month on month.
Bottom price levels
A panel of industry experts, at a recent meeting organised by Cityscape Connect, were less optimistic.
'I can't say that I've seen a recovery, I'd say that we're probably near bottom,' said David Macadam, Director of Better Homes' commercial division. 'The 2003 or 2004 lease prices are where we'll bottom out.'
'I think that we're looking more at 2006 prices,' said Elaine Jones, CEO of Asteco. 'You can't generalize and say that all prices have stopped falling.'
Despite this, Better Homes leasing figures are higher now than at the market's peak. In May the company transacted 400 leases, compared to between 200 and 300 per month in 2008.
'A third of these were new entries from the UK, Europe and the US, who were mostly mid-level managers,' said Macadam.
'A third were from outlying emirates, such as Sharjah, who were moving into Dubai. And a third were residents who were shifting into larger properties as prices drop. Commercial office leases were also much higher, with around 30 to 40 transactions per month. Mostly it's from companies downsizing. They were paying Dhs300 to Dhs400 per square foot and are now looking at Dhs100 to Dhs200 – although this is still above the global average of Dhs75 per square foot.'
Federal lending measures
The turn around in the sector is contingent on improved market sentiment, as well as increased access to financing by local banks – which will need to be backed by further initiatives at the federal level.
'This will never be a cash market,' said Sunil Gomes from Guru Real Estate. 'There just aren't enough wealthy individual investors. It will always be a debt/equity market, maybe it will go down from 90/10 to 60/40 but it will essentially remain a debt/equity market.
'So what Amlak and Tamweel do, and when they resume lending, will drive the region.'
Shahram Shamsaee, SVP Shopping Malls at Majid Al Futtaim agreed: 'The government can't force banks to lower their interest rates. You need a federal-backed lender to offer competitive rates, which will then push other banks into line.'