Bank of America Merrill Lynch has just issued one of the starkest predictions ever on Dubai’s residential property market. A report by the firm estimates that prices will fall 15% this year, as a 44,000 unit supply overhang forces a correction to current price levels.
“Even if all qualifying expats from Abu Dhabi and Sharjah relocated to Dubai tomorrow, we estimate that there would still be 44,000 vacant units in 2010,” said Merrill Lynch analysts in the report.
The report, authored by Karthik Sankaran, Abdelrali El Jattari, continued:
“We expect average residential prices to fall by 15 per cent in 2010, following a 45 per cent decline from third quarter 2008 peak levels. We see a rational unwinding and market segmentation over the medium term.”
The report follows some very positive news for the Dubai property market; when Colliers International revealed the first year on year growth in Dubai property prices since the downturn struck, when its report said that prices were 2% higher in Q1 of this year than Q1 of last year. The report also said that prices were up 4% on a quarterly basis, the second quarterly price rise in 3 quarters — Colliers said prices were up 7% in the third quarter of last year compared to the previous quarter.
The Colliers report also noted the high likelihood that prices would still fall further:
‘The completion of a “significant” number of new homes in Dubai later this year will put pressure on prices after they rose two per cent in the first quarter,’ said the report.
While the two reports agree on the fact that prices are heading for a further fall, despite the 45% fall already seen, they are in disagreement over what prices have done in recent months. In contrast to Colliers 4% quarterly rise in the first quarter, the Merrill Lynch report says that prices fell between 3 and 4% in the first quarter.
It is hard to find evidence to suggest anything but a further fall in property prices in Dubai, or to suggest that growth will be returning anytime soon.
Almost every research report that has been carried out in the Emirate over the last 6 months has pointed to massive over-supply in the residential sector. If a property is worth what a buyer will pay, how much is a property worth that nobody wants? Let alone one surrounded by similar properties that no one wants. On top of that, the more the negative news and predictions are made, the less the chances that people will start to want the properties at any price.
Dubai still has a leading retail and hotel sector, to attract foreign buyers Dubai may well need to go back to its roots; to the reasons people bought Dubai property, before they bought it for 40% month-on-month price growth. Then we may have a chance of a recovery, or even a bottom within 3-5 years.