To compete successful the market needs to become better aligned with its intrinsic value, says a new report from Standard Chartered.
Dubai does not necessarily have the kind of advantages that the world's top real estate markets like London, Paris, Singapore and New York have and is hampered by demographic pressures and physical constraints.
Signs of stabilisation in the emirate's property market are encouraging but further falls cannot be ruled out and should even be welcomed, according to analyst Philippe Dauba-Pantanacce.
'After a fall of 30 to 40% the first signs of stabilisation in Dubai's real estate sector have appeared, taking observers by surprise since further declines were expected,' he explained.
'Some caution is warranted as there are still question marks surrounding population flows in the coming months,' he added.
The report pointed out that the amount of distressed stock on the market has gradually diminished and that mortgage lenders have begun to ease their requirements.
Also official figures showing a net inflow of people into the country during the worst months of the crisis were 'reassuring', it said.
Some property companies are confident that the worst could be over and are reporting renewed interest among overseas investors. 'The market is showing early signs of bottoming out. However, it is too early to be absolutely sure,' said Peter Riddoch, chief executive of Damac Properties.
ETA Star Properties is reporting a slight increase in sales volume. 'The market is definitely bottoming out and slowly moving towards the growth path. However, before the summer lull sets in, we expect some more sales to happen this month,' said executive director Abid Junaid.