A recent report by financial services firm UBS has predicted that property prices in Dubai could drop a further 30% over the coming 18 months as the sector absorbs new supply coming online coupled with damaged investor confidence in the market due to the cancellations or postponements of a number of projects and a decrease in population in the emirate.
The report is on the bearish side of the spectrum, as some analysts, and a report by Deutsche Bank, said earlier this month that the market could begin a slow recovery in H1 2010, with some asset classes and specific locations near to bottoming out.
The UBS report predicts that prices will fall from the current average of Dhs900 per square foot, down almost 50% from Q3 2008, to approximately Dhs650 per square foot. From a trough in 2011 the market could expect to see 'only modest growth' in prices, with investors having to wait up to a decade for a return to 'peak' pricing.
UBS is estimating its figures by forecasting a population drop of 8% in 2009 and 2% in 2010, resulting in 30,000 empty units. This, added to estimated existing vacancies of 20,000 units and approximately 40,000 units scheduled to come online over the next 18 months, would result in excess residential supply of 90,000 units.
Lack of traction
Heather Wipperman-Amiji, CEO of Investment Boutique, agrees that the sector is likely to see a downturn in demand for units, but warns that forecasts remain difficult to analyse due to the small amounts of data available to the market.
'April probably saw a low point in terms of values for villas and apartments, while the summer months saw more volume than expected as investors took advantage of what they saw as the market bottoming out,' she told AMEinfo.com.
'There has been a shift from heavily villa-dominated sales to heavily flat-dominated sales in October, although October and November have been very difficult for the rental sector as leasing figures have not increased.'
Wipperman-Amiji also warns that the market may face difficulties in rapidly absorbing upcoming residential and commercial supply in the city, with areas such as Business Bay, DIFC, Jumeirah Lakes Towers and Jumeirah Village all expecting the roll out of new stock.
'Demand is waning due to the economic environment, the market can't seem to get any traction and the data jumps from month-to-month. There was a price jump in October in the Springs for instance, but you're only talking about 10 transactions, so there's really not enough data from which to correlate a forecast. We are not an island, we are affected by everything that goes on in the global economy,' she added.