Dubai Property Market Fails to Gain From Middle East Unrest, Deutsche Says

Residential property prices in Dubai, the worst-performing market in the Middle East for the past three years, haven’t yet benefited from political turmoil in other parts of the region, Deutsche Bank AG said.

Home values declined 1.2 percent in May from the previous month and rents fell by 1 percent, according to Nabil Ahmed and Athmane Benzerroug, two analysts at the bank. Apartment prices dropped 1.3 percent and villas lost 1 percent.

“Despite talks of renewed interest in real estate following regional unrest, there is no visible sign of an improvement,” the analysts said in a note to investors. “Even if we believe the worst of the downtrend is now behind us, new supply, lack of homebuyers’ appetite and anemic transaction activity point to further weakness.”

Property prices in Dubai, the second largest of the United Arab Emirates’s seven sheikhdoms, have dropped 64 percent from their peak in mid-2008, while rents have fallen 55 percent, according to Deutsche Bank. Revolutions that swept the Middle East and led to the overthrow of regimes in Egypt and Tunisia prompted speculation that investors would look at markets such as Dubai instead.

Asking prices dropped all over Dubai with the exception of apartments in Palm Jumeirah, Jumeirah Beach Residence and Sports City and villas in Emirates Living, Palm Jumeirah.

Arabian Ranches

Prices fell 2 percent in Jumeirah Lake Towers, The Greens and Arabian Ranches. Rental yields were 7.6 percent in May, unchanged from a month earlier and up from 7 percent a year ago, according to the report.

The Dubai Financial Market Real Estate Index, a measure of five developers’ stocks, has slumped 73 percent since mid-2008. The index was up 0.7 percent at 12:54 p.m. today and is still down 9.3 percent this year.

“Although the pace of decline has slowed of late, prices have continuously declined for 18 months in a row,” the analysts said. “The supply overhang looms large, homebuyers lack appetite, transaction volumes remain anemic, banks are cautious lenders and international investors are still wary of U.A.E. real estate.”

Deutsche Bank maintained its “buy” recommendation on Emaar Properties PJSC (EMAAR), the U.A.E.’s biggest developer, saying it has “superior asset quality, strong recurring income, reasonable leverage and cheap valuation.”

Emaar gained 1.3 percent to 3.13 dirhams in Dubai trading, ending three days of declines. The stock is down 12 percent this year. Deutsche Bank has a 12-month price estimate on the shares of 4.50 dirhams.

To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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