Residential property prices in Dubai are expected to maintain their downward trend to reach new lows in mid-2012 but they are not expected to rebound soon due to heavy supply, according to a Kuwaiti investment bank.

In Abu Dhabi, prices are expected to fall further by around 15 per cent through 2012 while rents are also projected to dip by about 10 per cent, Global Investment House (GIH) said in a study.

“Digging into 2012, Dubai selling prices of residential units should bottom out by the first half of 2012 but is still off from a general price appreciation as the market will remain overflowed with excess supply and significant new inorganic demand is not expected in 2012,” it said.

“We expect the same for the office market as new supply equivalent to 20 per cent of existing capacity is expected to enter the market in 2012 and 2013.”

For the Dubai hospitality segment, GIH said it does not expect the improvements that took place during 2011 as a result of Arab political unrest to be extended further in 2012 but saw a more negative spell on leisure tourism and business travel from the overall negative global sentiment.

For the retail segment, it expected further stability as the absence of new future supply, adding that the firmness of rental rates and moderate vacancy rates during 2011 act as positive indicators in the near future.

In Abu Dhabi, 2012 is expected to see a further 15 per cent drop in selling prices of residential units and 10 per cent drop in rents as new supply continues to enter the market, the report said.

“We also expect further deterioration in the office market in Abu Dhabi as considerable new supply is currently in the pipeline pressuring both property prices and rental rates downwards.”

Its outlook for Abu Dhabi’s hospitality segment was also negative for 2012 given the new supply entering the market coupled with low demand for tourism and an already feeble performance in 2011.

GIH said the emirate’s retail segment was able to maintain stable performance in terms of rental rates in the absence of new quality supply but is expected to see further downward pressures going forward as several deliveries are scheduled in 2012 and 2013.

The report noted that despite several project cancellations and delays that took place in the UAE, 2011 proved yet another tough year for the Dubai and Abu Dhabi property markets as expected earlier on the year.

It showed average prices for residential units dropped by around 12 and 17 per cent in both markets respectively while apartment rents followed a similar pattern, moving down by nine and 12 per cent.

“The quarterly rate of decline, however, is starting to signal early signs of stabilization, with Dubai villa rents increasing slightly in the third quarter of 2011 while the pace of decline in apartment rents has decelerated significantly compared to the 2009 – 2010 period.”

Office rents also followed suit down 10 per cent on average in Dubai and 20 per cent in Abu Dhabi, reflecting the slowdown in business activity coupled with relentless new supply entering the two markets, leaving them with an estimated vacancy rate of 45 per cent in Dubai and 20 per cent in Abu Dhabi up from 40 per cent and 10 per cent at the end of 2010.