Property could fall again in 2009

Property prices will fall further as the global slowdown continues to hit the sector, analysts say.

Residential property prices had been rising until last October in Abu Dhabi. Fundamentals remain strong with a shortage of property.

Property prices are expected to fall further as the global economic slowdown continues to hit the sector, according to analysts. Compared with figures last July when the market peaked, the total fall in property prices by the end of this year is predicted to be up to 60 per cent in Dubai and about 20 per cent in Abu Dhabi, according to Roy Cherry, a research analyst at Shuaa Capital. "2009 will be a dark year for the real estate sector," said Mr Cherry. "We expect the first half of 2009 to potentially realise further drops, with stronger declines in Dubai than in Abu Dhabi."

The first half of the year will be the most challenging in Dubai, with asset values reaching new 24-month lows, increased defaults on off-plan property and growing issues with payments, according to a note on the outlook of 2009 by Shuaa Capital's research team. Dubai's property prices fell up to 40 per cent last year as high-profile corruption scandals in the sector picked up pace during the summer months. Residential property up until July last year had reached all-time highs. Off-plan primary market properties in Downtown Burj Dubai and DIFC were selling for Dh45,000 (US$12,249) to Dh55,000 per square metre, an increase of about 100 per cent in less than a year. However, as hot money left the market and banks began to restrict lending to developers and contractors in August, the sector began to struggle, analysts say.

"Most of Dubai's gain [in real estate growth from 2007 to 2008] has evaporated due to the recent crisis that we've seen," said Mr Cherry. Shuaa analysts warn that Abu Dhabi's property sector, while more resilient than Dubai's, is not immune. "It's more of a sentiment-based correction that we're seeing in Abu Dhabi; fundamentals say the market is strong, yet there is a negative reaction due to what's happening in Dubai and the severity of it," said Mr Cherry.

Abu Dhabi's population is likely to grow but at a slower pace than last year, meaning that short-term demand growth will also be suppressed, according to Shuaa's research note. Fundamentals remain strong, however, with the residential property market witnessing extreme shortage and rising rents. Residential property prices had been rising until last October. In the 12 months from Oct 2007 to Sep 2008, Abu Dhabi prices of apartments increased by nearly 90 per cent, according to Colliers.

Abu Dhabi occupancy rates are expected to remain close to full levels and rents to stay on the rise, according to Shuaa. In the past year, Abu Dhabi rents are estimated to have risen by 65 per cent in spite of a 5 per cent cap on rent renewals. Although the Abu Dhabi market is expected to see fewer transaction activities and perhaps a further drop in asset values in the first two quarters of this year, growth is expected in the following quarters.

"Fourth-quarter results will give some indication of where we're going, and the second half of 2009 will give us a better ability to assess how the crisis has impacted the sector," said Mr Cherry. For the moment, Mr Cherry expects further corrections in the property sector as long as uncertainty remains high, economic data is limited, project funding remains an issue and job security levels remain low.

While relatively optimistic about transactions in the second half of this year, he does not expect a sudden rebound. "The days and liquidity of 2008 are long gone and won't be seen for some time to come." [e-mail] [e-mail]