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Debt crisis expected to delay real estate recovery in Dubai until 2012

Property prices in the Gulf emirate, which boasts the world’s tallest tower, have only a 13% chance of picking up before 2011, according to the median forecast of 12 analysts at banks, investment firms and research institutions questioned by Reuters.

Only one of 13 respondents said prices had reached a bottom, while four said they expected a trough to be reached in the first half of this year, three in the second half of 2010 and four in the first half of 2011, the poll showed. One said prices would not bottom out until at least the second half of 2011.

Dubai rocked the financial world in November when it said it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its iconic palm shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring.
‘The recent woes of Dubai World have further sapped the prospects of a recovery in real estate,’ said Fabio Scacciavillani, an economist at the Dubai International Financial Centre.

Prices are also set to fall a further 3% in 2011, according to the median of 10 forecasts, but one analyst said prices could still fall a further 40% from current levels which are already down 50% on peak.
‘Conditions in the UAE property market will remain weak in 2010 because of unfavourable demographics, property oversupply and risks associated with cancelled or delayed projects,’ said Keith Edwards, head of asset management at The First Investor in Qatar.

‘Furthermore, we anticipate continuation of rising vacancy ratios; however, this will depend on the asset quality or location,’ Edwards added.
Dubai is expected to be oversupplied by 32,000 new homes by the end of 2010, according to Deutsche Bank figures.

‘In the long term we expect the crisis will limit the supply of properties in the market due to the decrease in liquidity and financing,’ said Sajeer Babu, an equity analyst at National Bank of Abu Dhabi, adding the bank expected property prices to fall another 10 to 15% before any major recovery in prices.

The poll also indicated that rents in Dubai are poised to fall 10% in 2010 and to remain flat in 2011, but four out of 12 respondents expected rents to fall 15% or more in 2010 while three saw prices rising in 2011.

Property prices in neighbouring Abu Dhabi, the UAE capital and home to most of the country’s oil, are likely to be unchanged this year, the median of 11 forecasts showed, with three analysts expecting climbs while one expected a fall of 25%. Prices are then seen rising by 3% in 2011.
‘Abu Dhabi prices are expected to increase due to the mismatch in demand and supply and the nearing of the delivery of some of the projects,’ Babu said.

National Bank of Abu Dhabi expects a shortage of more than 20,000 homes by the end of 2010 with demand rising due to a population increase and limited supply. Rents in the capital are seen falling 15% in 2010 and by 5% in 2011.