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Reuters poll: Oversupply to knock Dubai house prices 10% in 2010

DUBAI: Dubai house prices and rents are set to fall 10% more in 2010 and not recover until 2012, as the resumption of some projects and completion of others weigh on an already-oversupplied market, according to a Reuters poll.

Dubai sent shockwaves through global markets late last year when it said it would request a standstill on billions of dollars of debt linked to Dubai World.

Residential property prices in the Gulf emirate, which boasts the world's tallest building, have fallen 53% so far from their peaks in 2008 due to the global downturn, according to the median estimate of 17 analysts at banks, investment firms and research institutions.

Only two respondents said house prices had reached a bottom, while three said they expected prices to reach a trough in 1H2010, five in 2H and six in 1H2011, the poll, which was taken between April 5 and April 12, showed.

Prices are likely to climb 3% in 2012 according to the median. Three out of 14 respondents said they expected house prices to continue falling in 2011 while three out of five said they saw prices rising in 2012. "The situation remains highly uncertain with the resumption of some projects by Nakheel and consequent risk of oversupply a major near-term risk," said Jarmo Kotilaine, chief economist at NCB Capital.

"I expect the Dubai market to take an extended period to sustainably stabilise and move around. We may see a period of volatility before prices start picking up again."

Dubai said in March it plans to pour US$8 billion (RM25.6 billion) into developer Nakheel, builder of man-made islands in the shape of palms and a map of the world, with a US$1.2 billion debt-for-equity swap, allowing it to pay contractors and restart some of its viable projects.

The emirate added to the world financial crisis in November when it said it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, to agree to a standstill on billions of dollars of debt as a first step to restructuring.

Investment bank Shuaa Capital expects more than 26,000 homes to be completed in 2010, while Deutsche Bank expects Dubai to be oversupplied by 32,000 new homes by the end of the year.

Transaction volumes in Dubai are lower-than-expected since the last Reuters poll for house prices in the United Arab Emirates in January, because of the disparity between buyer and seller expectations, said Jesse Downs, director of research and advisory services at property consultancy Landmark Advisory.

"Sellers need to adjust their price expectations downward before transaction volumes will pick up," Downs said.

Property prices in Dubai dropped slightly in March, but oversupply and lack of financing hampered a sustained price stabilisation, Deutsche Bank said in a research note on Sunday.

Meanwhile rents in Abu Dhabi, the capital of the UAE, and home to most of the country's oil, are expected to fall 15% in 2010, a further 3% in 2011 before rising 5% in 2012, the poll showed.

"Rental prices in Abu Dhabi are also expected to continue the declining trend as large supply of housing stocks come into the market in the second half of this year," said Sajeer Babu, an equity analyst at National Bank of Abu Dhabi.

"In Dubai the completion of large number of new units is expected to put further pressure on rental prices," he added.

House prices in the capital are expected to fall 10% in 2010, with only one out of 15 analysts expecting prices to rise.

Prices are seen flat in 2011 and 2012, the poll showed. -- Reuters

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