Dubai property prices expected to peak in 2009

Soaring housing prices in Dubai are likely to peak in 2009 before falling at least 15% as the Gulf emirate takes measures to weed out short-term speculators, according to forecasts from a group of banks, investment firms and research institutions.

Residential property prices in Dubai are likely to jump 35% this year, according to the median of forecasts from the 10 organisations.

Price growth will probably slow to 8.5% next year, when five of the nine analysts expect prices to hit a peak after double-digit increases in each year since Dubai opened its property market to foreign investment in 2002.

'After four years of tremendous price growth the market needs a breather,' said Robert McKinnon, managing director of equity research at Al Mal Capital. 'Dubai has taken some measures to tackle speculation which will have some impact on the market,' he added.
Six of the analysts say prices could fall at least 15% from peak to trough, including one expecting a drop of more than 30%. Two foresee no correction in prices at all and two anticipate declines of 10%.
Overall the group forecast a 32.5% chance of a correction in Dubai. Half said the chance of a correction exceeded 50%.

'When the correction happens, a lot of existing potential buyers will start entering the market on more attractive prices and thus balancing the market going forward,' said Ahmed Badr, an equity research analyst at Credit Suisse in Dubai.

Speculators in search of quick gains have been a main driving force behind the 79% surge in Dubai housing prices since the start of 2007, according to investment bank Morgan Stanley.
Expatriates from countries facing political instability, such as Pakistan, Lebanon and Iran, for instance, have long been lured to Dubai by its safe-haven status. 'There is enough demand to take the place of speculation, but the demand is at a different price level,' McKinnon said.

Even as speculators exit the market, analysts said a sharp fall in prices was unlikely since the state exerts extensive control over supply. Most said residential prices in Dubai were slightly overvalued.
'At the worst we could see a soft landing, but a sharp correction in the Dubai market is far-fetched,' said Bikash Rout, senior financial analyst at Global Investment House. Dubai needs about 30,000 to 35,000 new units each year to meet demand as the population grows 7 percent per year, he added.

DUBAI, Aug 5 (Reuters) - Dubai property prices, which have surged 79 percent since the start of 2007, are likely to fall 10 percent by 2010 as supply of real estate units outpaces demand in the Gulf emirate, Morgan Stanley said on Tuesday.

DUBAI, Aug 5 (Reuters) - Dubai property prices, which have surged 79 percent since the start of 2007, are likely to fall 10 percent by 2010 as supply of real estate units outpaces demand in the Gulf emirate, Morgan Stanley said on Tuesday.

In a worst-case scenario, Dubai property prices would follow the pattern of Singapore in the late 1990s, when real estate prices plunged 80 percent in 18 months, Morgan Stanley said, calling this a "low probability event". "We expect oversupply to hit Dubai in 2009, leading to a period of price declines," Morgan Stanley said.

While we expect these price declines to be limited to Dubai given the level of undersupply in surrounding markets, we cannot rule out a 'contagion' effect on Middle East, North Africa property shares prices, as investor confidence suffers."
The bank initiated coverage of 12 Middle East property firms, including the region's largest by market value, Emaar Properties EMAR.DU, whose shares trade more than 100 percent below Morgan Stanley's 21.4 dirham ($5.83) target price.
Home to man-made palm-shaped islands and an indoor ski slope in the desert, Dubai kicked off a regional property boom in 2002 when it first invited foreigners to invest in real estate.
Since then, regional economic growth supported by a six-fold rise in oil prices has attracted streams of investors.
Last month, Standard Chartered Bank said Dubai was overheating because speculators were inflating prices of real estate still under construction. It recommended the emirate introduce a capital gains tax to deter short-term investors. [ID:nL24706347]

Prices have been driven by a combination of genuine demand, speculation and, most recently, escalating construction costs," it said.
"For 2009, we expect prices to start coming under pressure as oversupply becomes evident. We forecast a 10-percent decline between 2008 and 2010 in our base case."
Some developers in Dubai are trying to weed out short-term investors.
Palm island developer Nakheel is requiring buyers at its Trump International Hotel to wait a year before they can sell their units on the secondary market, UAE daily The National reported on Tuesday.

Palm island developer Nakheel is requiring buyers at its Trump International Hotel to wait a year before they can sell their units on the secondary market, UAE daily The National reported on Tuesday.

While Dubai is the "bellwether" for the Gulf property market, slight easing of prices in the emirate may not impact Abu Dhabi and Qatar, whose property sectors should remain undersupplied until at least 2012, Morgan Stanley added. (Reporting by Daliah Merzaban; Editing by Thomas Atkins, Paul Bolding)

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