Reality check due in property

DUBAI // Property investors need to wake up to the reality of lower selling prices in Dubai and Abu Dhabi after the global economic downturn burst the housing bubble last year, brokers and analysts say. Industry experts at Cityscape yesterday said that there would be no return to the boom of the past few years, when prices soared.

In Dubai, for example, prices rose 78 per cent by the first quarter of last year from the year earlier, according to Colliers International. In Abu Dhabi, prices rose 53 per cent between April 2007 and April of last year. In Dubai, sale prices have declined by 40 per cent to 60 per cent since the peak of the market in the middle of last year. And in Abu Dhabi, prices are down more than 35 per cent, according to industry estimates.

"Investors will have to be realistic about where the market is today. It won't turn back to what it was in mid-2008," said Joe Ong, the chief executive of the Abu Dhabi-based developer Tamouh. "A reasonable price on Marina Square should be below Dh1,300 (US$353) to Dh1,500 per square foot of property that will be delivered by the next one year. Nothing should be above Dh1,800." Marina Square is located on Al Reem Island in Abu Dhabi. Landmark Advisory's UAE property report for the fourth quarter of this year backs this up. It said that in Abu Dhabi's residential market average listed sale prices had increased, but real transactional prices had not.

"This means that listings in Abu Dhabi are increasingly inconsistent with real market values," said Jesse Downs, the head of research at Landmark. Prices for off-plan properties on Al Reem Island and Al Raha Beach reached Dh1,950 per sq ft on the resale market and exceeded even Dh2,500 per sq ft on the primary market, or developers' launch prices. After recognising buyers' difficulties in meeting their payment obligations many developers including Sorouh Real Estate and Bloom Properties have reduced their prices. "The market was dead from January to March.

Owners were panicking and we saw prices starting at Dh950 up to Dh1,100," said Mukandar Djurayava, a property consultant at Engel and Volkers in Abu Dhabi. This compares to Dh1,950 per sq ft at the peak of the secondary market last year. "Then people started to buy again a little bit after Cityscape Abu Dhabi in May," she said. "The sellers thought 'Wow, I can sell now!' and they immediately put prices high, which was totally unrealistic."

According to Ms Djurayava, the current price rise is exaggerated. "The market is still fragile. People are not really convinced yet. It may be a right time to buy but owners on the other hand should show some common sense. The market has not reached Dh1,400." Sellers in Dubai are starting to be more realistic: the gap between asking and real prices has narrowed to 7 per cent in the second quarter of this year from 20 per cent 12 months earlier, according to the report from Jones Lang LaSalle.

"But even in Dubai sellers are still in denial," said Charles Neil, the chief financial officer of Landmark. "On a general level you should be looking at 2006 pricing." Several analysts predicted recently a further price decline in Dubai over the coming year but disagreed on the size. "By the year end, you can expect 10 to 15 per cent fall from the current level," said Sajeer Babu, an analyst at the National Bank of Abu Dhabi. Landmark estimates Dubai's supply surplus to be 60,000 to 70,000 units next year, about 20 per cent of the total supply.