Investors could be forgiven for thinking that Dubai property is a sure bet right now, considering how the sector has been hit by the recent recession. With prices in some areas down by as much as 50 per cent from their highs, reached in the third quarter of 2008, surely there are bargains out there. Think again, says HSBC. Risk of oversupply, coupled with limited transactions and a shortage of credit available to investors, will continue to hamper recovery this year, HSBC said in a report released this week.
But most importantly to investors, the slide in value is not over yet. Analysts at the property consultancy Jones Lang LaSalle and UBS bank say prices in Dubai could fall another 30 per cent in some areas of the emirate this year. The gap between buyer and seller pricing, and fewer transactions, are expected to exacerbate price fluctuations in the short term, HSBC said. Analysts estimate that between 25,000 and 30,000 new residential units will come online this year, and an additional 20,000 to 25,000 next year, although financial constraints and infrastructure setbacks on some projects may mean that some units will not be delivered on time.
"There's still going to be oversupply and population issues, so house prices will continue to slide," said Saud Masud, a property analyst at UBS. Meanwhile, residential property prices in the capital are unlikely to increase until at least 2012, according to research from the Dubai property consultancy Investment Boutique. "It's going to be interesting to see how Dubai deals with oversupply and how Abu Dhabi tries to avoid it," Mr Masud said.
Meanwhile, investors may be better off concentrating on regional markets beyond the UAE, such as Egypt and Saudi Arabia, HSBC said. "Egyptian and Saudi property markets are in relatively better shape, with developers in Egypt keeping prices stable to minimise cancellations of off-plan sales," the bank said in its report, adding that land sales in Saudi Arabia have shown significant improvement after a weak performance last year.