Property glut will sap confidence of buyers

Analysts say property prices could fall another 30 per cent across some areas of Dubai.

The slide in Dubai property values is not over yet. Already down by more than 50 per cent since the third quarter of 2008, analysts say prices could fall another 30 per cent across some areas of the emirate. One reason for this is a simple supply and demand imbalance. The property consultancy Colliers International had forecast that 34,000 new residential properties would come to market in Dubai by the end of next year.

While prices are likely to remain flat in sought-after communities such as The Greens and The Springs, new property in the parts of town that still lack amenities, or are yet to be connected to water and electricity, will suffer, the consultancy Jones Lang LaSalle said in a report released on Monday. "We're in the early to mid-cycle of this property downturn and we've got a long way to go," said Saud Masud, a property analyst at UBS in Dubai.

But the biggest impediment to a recovery is investor confidence, analysts say. Even though the slowdown has created a market for properties at distressed prices, the lack of transparency surrounding Dubai World's request to restructure its debt - much of it amassed by its property units Nakheel and Limitless - has further dampened investor enthusiasm. "They will be less willing to put their money in the market until they see further clarity," said Majed Azzam, a property analyst at Al Futtaim HC Securities who is based in Dubai.

Craig Plumb, the head of research at Jones Lang LaSalle in Dubai, said the need to build confidence and greater transparency "is no longer optional, but a necessity in the region's fast-evolving real estate markets". However, investors willing to take a risk should look ahead at the gains that could be realised from buying property now. "The rate of decline may be comparatively less in 2010 than in 2009, but the timing of recovery will depend on additional demand from both investors and tenants," said Mr Plumb.

"As the markets mature, investors need to take a longer-term view, as the levels of returns are expected to become more stable and sustainable."