Dubai home prices may drop 20 percent further as properties under construction are completed, Credit Suisse said, adding to a consensus that the market has further to fall.
“We expect asset prices to stabilize by the end of 2011 or beginning of 2012, depending on how quickly the supply is absorbed by the market,” Ahmed Badr, the Zurich-based bank’s analyst in Dubai said in a research report. Oversupply will probably peak in 2011, he said.
Dubai went from being the world’s best-performing real estate market to the worst within a year as the financial crisis strained financing for mortgages and forced out speculative buyers. Colliers International estimates 41,000 residential units will enter the market by the end of 2010, mostly in the low- to mid-income markets, according to a May 9 report. Home prices have dropped more than 50 percent since mid-2008.
A drop of 20 percent more would take average prices to about 837 dirhams ($227) a square foot, based on Credit Suisse’s current price estimate of 1,046 dirhams. Deutsche Bank AG analyst Nabil Ahmed expects prices to reach 850 dirhams by the end of this year. UBS AG analyst Saud Masud predicts a drop to about 600 dirhams. Badr said prices will fall by a minimum of 15 percent.
“We are still seeing a very low number of transactions,” Deutsche’s Ahmed said by telephone today. “No one is getting financing from the bank. There are still some people keen to buy at these prices, especially in central locations where they think the floor has been reached.”
Prices in neighboring Abu Dhabi are about 20 percent higher than in Dubai and rents are 45 percent more, Badr of Credit Suisse said in the note. He predicted that the gap will narrow as the emirate is also affected by new supply coming onto the market.