Job losses hasten property decline in Dubai but medium-long term outlook upbeat
Job cuts in the Middle East could hasten the downward spiral of property prices but a sharp drop in prices could actually make the crisis short-lived, analysts claim.
The price correction in Dubai's real estate market will come sooner and be steeper than anticipated as demand falls amid the global financial crisis, according to Egyptian investment bank EFG-Hermes.
It is still predicting a 20% correction in Dubai real estate prices by 2011, but that the fall would come sooner than previously thought.
'While EFG's forecast is still for a 20% decline, this has now become very front-end loaded and with risks significantly skewed to the downside,' said analyst Raj Madha.
The global financial crisis has hit demand for real estate in Dubai from foreign investors, which make up the large proportion of buyers, while tightening liquidity has made home financing much more difficult.
Added to this, Madha said, is a glut of new properties expected to come onto the market that could be harder for the market to absorb if immigration falls as companies cut jobs amid the crisis.
'We are currently seeing significant distress in the property sector, resulting in several major developers cutting headcount. As for financial services, we expect that with the local index declining over 60%, there will be less revenue to go around, and therefore less revenue to justify the current staffing requirement,' he predicted.
New properties coming onto the market could see rents decline, meaning Dubai would be better placed to market itself to industries that have increasingly been priced out of the market, he added.
But the medium to long term out look for Dubai's property market remain upbeat. 'While the problems in the sector are manifest, we believe that with well-targeted policy decisions, and a sharp reduction in prices, these problems could be relatively short-lived,' he concluded.