Stuck in the middle with you
Negative population growth, cancellation of visas for home buyers, lack of mortgage funding, declining occupancy rates and cancellation of projects all add up to a tough outlook for the property market in the Middle East, it is claimed...
Real estate prices in Dubai have already fallen by 40 per cent and rents could fall by 20 per cent over the next two years, according to the latest outlook report from investment bank Shuaa Capital.
'Prices in Dubai could lose 50 to 60 per cent by the end 2009 from their peak last summer. It is going to be tough for the market to show resilience at least in the first half of 2009,' said Analyst Roy Cherry.
And even in oil rich Abu Dhabi, which many thought would be largely immune from the global downturn, the real estate slump is becoming evident. The report indicates that prices have so far plunged 15 per cent and could slide a further five per cent.
'Talk on the street makes it sound as if the global financial crisis only reached the shores of Dubai and somehow missed Abu Dhabi. The reality is very different. Yes, Abu Dhabi is more resilient than Dubai but, contrary to popular belief, it is not immune,' the report says.
However the population in Abu Dhabi is expected to continue growing but at a slower pace than in the past and the economy is also expected to decelerate.
'Though this will suppress near term demand growth, our view remains that the fundamental case and outlook for Abu Dhabi real estate is strong. Abu Dhabi's major developers, together with the leading banks, are taking initiatives to nourish the availability of property finance to boost buyer appetite,' it says.
'But the reality is such that finance availability has retracted, interest rates have gone up and LTV's are down. The above factors, coupled with the impact on local sentiment from the unfolding events in the neighbouring Dubai real estate market, will continue to hold back home buying decisions and transaction activity in the immediate short-term as investors/future homeowners await a reduction in the widespread uncertainty,' it continues.
Analysts say that prices could start to stabilize in the final quarter of 2009 or early 2010 and almost 80,000 unites are expected to be delivered in the next two years but a declining population manly due to the loss of jobs in the construction industry, would affect demand.
They expect a drop of five per cent in Dubai's population from 1.7 million to 1.62 million residents in 2009, before a slight pickup is recorded in 2010 to 1.68 million. Occupancy levels in Dubai are expected to drop to the 80 per cent level over the next two years. The office space market in Dubai is going to feel the pinch as well.
'Just as rapid growth in population has generally meant a growing economy and labour force, lay-offs mean shrinking population, declining local demand and economic activity which eventually is translated to lower demand for office and residential space,' the report points out.
Source: www.propertywire.com