DUBAI (Zawya Dow Jones)--Property prices in Dubai, which have risen 79% since 2007, will start falling in the second half of next year and could drop as much as 10% by 2010 on oversupply, Morgan Stanley (MS) said Tuesday.
Prices in Abu Dhabi and Qatar, however, are expected to rise by 25% and 15% respectively over the next two years, the investment bank said in a research note.
"We expect Qatar and Abu Dhabi to remain undersupplied through 2012; Dubai oversupply will hit in 2009," Morgan Stanley said. "A hard landing in the Dubai property market would damage sentiment across the region."
Dubai is at the center of the Gulf region's construction boom triggered by the introduction of foreign ownership rights in 2002. The emirate expects to attract 184 billion U.A.E. dirhams ($50.1 billion) in real estate investment by 2010.
Currency revaluation and higher interest rates are among the risks impacting Dubai and the rest of the Gulf region, the note said.
In the worst case scenario, Dubai property prices could follow those of Singapore in the late 1990s, when real estate prices plunged 80% in just over a year, the bank said. However, it added that this is unlikely to happen as the MENA region is "supported by strong underlying economic activity fueled by higher oil prices."
Property prices have soared in recent years, fueled by high demand, rising constructions costs and rampant inflation.
Prices in the emirate rose 78% to more than $400 a square foot in the first quarter of 2008 from a year earlier, according a recent report by Colliers International.
Morgan Stanley said Dubai property prices rose 25% in the first half of 2008, and 79% since the beginning of 2007 driven by a "combination of genuine demand, speculation and, most recently, escalating construction costs."
"Demand is being driven by rising populations - Dubai, Abu Dhabi and Qatar should each grow by 0.5 million over the next five years - and a rising middle class in Egypt and Saudi Arabia," it said.
In recent months, concern has been mounting over the levels of uncontrolled speculation.
Last month, Standard Chartered Bank recommended that Dubai should introduce a capital gains tax to reduce speculative buyers.
"Introducing a capital gains tax on the sale of properties within a year of their purchase and changing the payment plans offered by developers can help reduce short-term speculation," it said.
Dubai-based real estate developers are also trying to crackdown on speculative investors looking to cash in on the sheikdom's real estate.
NakheelNakheelLoading..., developer of the three palm-shaped projects off the emirate's coast, has said that buyers at its Trump International Hotel project have to wait a year before they can sell their units on the secondary market, while Emaar PropertiesEmaar PropertiesLoading... (EMAAR.AI) is restricting secondary sales of its properties until buyers have paid 30% of the cost.
Earlier this year, Marwan Bin Ghalita, chief executive of Dubai's Real Estate Regulatory Agency told Zawya Dow Jones that speculative buyers were inflating property prices.
"Real estate isn't like the stock market, it's a long term investment," he said. "Only in Dubai you see people flipping apartments to make fast money and this isn't helping the market."
In the note, Morgan Stanley initiated an overweight rating for EmaarEmaarLoading..., the Middle East's largest developer of real-estate, with a target price of AED21.4. EmaarEmaarLoading... closed flat AED10.55 on Tuesday.
The property prices in Dubai have surged 79 percent since 2007, and, may fall 10 percent by 2010, with the supply surpassing demand in the Gulf emirate, reveals a research not by Morgan Stanley.
This correction in Dubai's realty sector could have an undulation effect on its neighbouring countries in the region, with the shares of 12 regional property firms, dropping an average of 35 percent, states the research note.
At the worst, Dubai property prices may follow the pattern experience during the late 1990s in Singapore, wherein property prices dropped 80 percent in 18 months, although it is a "low probability event", said Morgan Stanley report.
Dubai property market will see an oversupply in 2009, which will lead to a series of price declines. Although these price declines are limited to Dubai, given the level of undersupply in neighboring markets, one cannot ignore the 'contagion' effect on Middle East, North Africa property share prices, with the investor confidence levels dropping down, Morgan Stanley said.
Being home to man-made palm-shaped islands and indoor ski slope in the Desert, Dubai hit the property boom in the region in 2002, when the foreigners were invited to invest in real estate. Thereafter, the regional economic growth in Dubai was supported manifold by the rise in oil prices, which drew streams of investors into the business and trade hub.
The Standard Chartered Bank last month mentioned that Dubai was boiling with speculators inflating prices of real estate that are still under construction. It was recommended that the emirate introduce capital gain tax to deter short-term investors.
Now, as per the Morgan Stanley price index, the property prices in Dubai surged 25 percent during first half of 2008, but is higher by 79 percent as against that in the beginning of 2007. The price increases have been driven by a variety of factors including speculation, genuine demand, and escalating construction costs.
For 2009, the prices will begin feeling the pressure, once oversupply becomes evident. Hence a 10 percent decline in property prices can be expected between 2008 and 2010, reveals the Morgan Stanley note.
Few developers are in fact, trying to keep away short-term investors. The developer of the Palm Island, Nakheel, has asked buyers at Trump International Hotel, to wait for a year, before selling off their units to the secondary market.
Although, Dubai is the leader for the Gulf Property market, the minor relaxation in prices in the emirate, may however, not bear an impact on Abu Dhabi and Qatar, as the property sectors here is likely to remain undersupplied until 2012, the report concluded.
Prices in Abu Dhabi and Qatar, however, are expected to rise by 25% and 15% respectively over the next two years, the investment bank said in a research note.
"We expect Qatar and Abu Dhabi to remain undersupplied through 2012; Dubai oversupply will hit in 2009," Morgan Stanley said. "A hard landing in the Dubai property market would damage sentiment across the region."
Dubai is at the center of the Gulf region's construction boom triggered by the introduction of foreign ownership rights in 2002. The emirate expects to attract 184 billion U.A.E. dirhams ($50.1 billion) in real estate investment by 2010.
Currency revaluation and higher interest rates are among the risks impacting Dubai and the rest of the Gulf region, the note said.
In the worst case scenario, Dubai property prices could follow those of Singapore in the late 1990s, when real estate prices plunged 80% in just over a year, the bank said. However, it added that this is unlikely to happen as the MENA region is "supported by strong underlying economic activity fueled by higher oil prices."
Property prices have soared in recent years, fueled by high demand, rising constructions costs and rampant inflation.
Prices in the emirate rose 78% to more than $400 a square foot in the first quarter of 2008 from a year earlier, according a recent report by Colliers International.
Morgan Stanley said Dubai property prices rose 25% in the first half of 2008, and 79% since the beginning of 2007 driven by a "combination of genuine demand, speculation and, most recently, escalating construction costs."
"Demand is being driven by rising populations - Dubai, Abu Dhabi and Qatar should each grow by 0.5 million over the next five years - and a rising middle class in Egypt and Saudi Arabia," it said.
In recent months, concern has been mounting over the levels of uncontrolled speculation.
Last month, Standard Chartered Bank recommended that Dubai should introduce a capital gains tax to reduce speculative buyers.
"Introducing a capital gains tax on the sale of properties within a year of their purchase and changing the payment plans offered by developers can help reduce short-term speculation," it said.
Dubai-based real estate developers are also trying to crackdown on speculative investors looking to cash in on the sheikdom's real estate.
NakheelNakheelLoading..., developer of the three palm-shaped projects off the emirate's coast, has said that buyers at its Trump International Hotel project have to wait a year before they can sell their units on the secondary market, while Emaar PropertiesEmaar PropertiesLoading... (EMAAR.AI) is restricting secondary sales of its properties until buyers have paid 30% of the cost.
Earlier this year, Marwan Bin Ghalita, chief executive of Dubai's Real Estate Regulatory Agency told Zawya Dow Jones that speculative buyers were inflating property prices.
"Real estate isn't like the stock market, it's a long term investment," he said. "Only in Dubai you see people flipping apartments to make fast money and this isn't helping the market."
In the note, Morgan Stanley initiated an overweight rating for EmaarEmaarLoading..., the Middle East's largest developer of real-estate, with a target price of AED21.4. EmaarEmaarLoading... closed flat AED10.55 on Tuesday.
The property prices in Dubai have surged 79 percent since 2007, and, may fall 10 percent by 2010, with the supply surpassing demand in the Gulf emirate, reveals a research not by Morgan Stanley.
This correction in Dubai's realty sector could have an undulation effect on its neighbouring countries in the region, with the shares of 12 regional property firms, dropping an average of 35 percent, states the research note.
At the worst, Dubai property prices may follow the pattern experience during the late 1990s in Singapore, wherein property prices dropped 80 percent in 18 months, although it is a "low probability event", said Morgan Stanley report.
Dubai property market will see an oversupply in 2009, which will lead to a series of price declines. Although these price declines are limited to Dubai, given the level of undersupply in neighboring markets, one cannot ignore the 'contagion' effect on Middle East, North Africa property share prices, with the investor confidence levels dropping down, Morgan Stanley said.
Being home to man-made palm-shaped islands and indoor ski slope in the Desert, Dubai hit the property boom in the region in 2002, when the foreigners were invited to invest in real estate. Thereafter, the regional economic growth in Dubai was supported manifold by the rise in oil prices, which drew streams of investors into the business and trade hub.
The Standard Chartered Bank last month mentioned that Dubai was boiling with speculators inflating prices of real estate that are still under construction. It was recommended that the emirate introduce capital gain tax to deter short-term investors.
Now, as per the Morgan Stanley price index, the property prices in Dubai surged 25 percent during first half of 2008, but is higher by 79 percent as against that in the beginning of 2007. The price increases have been driven by a variety of factors including speculation, genuine demand, and escalating construction costs.
For 2009, the prices will begin feeling the pressure, once oversupply becomes evident. Hence a 10 percent decline in property prices can be expected between 2008 and 2010, reveals the Morgan Stanley note.
Few developers are in fact, trying to keep away short-term investors. The developer of the Palm Island, Nakheel, has asked buyers at Trump International Hotel, to wait for a year, before selling off their units to the secondary market.
Although, Dubai is the leader for the Gulf Property market, the minor relaxation in prices in the emirate, may however, not bear an impact on Abu Dhabi and Qatar, as the property sectors here is likely to remain undersupplied until 2012, the report concluded.
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