Property prices will hold, not fold

Prices for residential properties in Dubai and Abu Dhabi have started to stabilise and will “hold” rather than “fold” over the next six months, according to a global investment bank.

“We think there are signs of price stabilisation across the residential market, with the recovery in Dubai (in selected areas) stronger than Abu Dhabi. Annualised, the Abu Dhabi market has been prone to less pronounced swings,” Nomura said in a report released today.

“In the past two months, we find some positive momentum in the market – but this is prior to the traditionally slow summer season. We expect residential prices to ‘hold’ rather than ‘fold‘ over the next six months. We still see overall asset and rental values falling 10 per cent in aggregate in 2011,” Chet Riley, the author of the report, noted.

“We do expect more rental pressure in Abu Dhabi real estate as supply is added and this may put further pressure on capital value,” Riley added.

Abu Dhabi, which has consistently enjoyed a yield premium, is getting “squeezed” as rental values catch up to Dubai. Besides, cross-border renting is likely to abate as rents drop in the capital and more supply is added.

“We view both markets as co-dependent and the yield differential could close further,” the report said.

In its 2011 Middle East and North Africa (Mena) Real Estate Investor Sentiment survey, Jones Lang LaSalle mentioned that Dubai had already passed the supply peak, while Abu Dhabi was still approaching the peak of the supply cycle. And so Abu Dhabi rents and sale prices were expected to continue to decline in the coming year. It believed that Dubai will witness “some stability” in capital values, but Abu Dhabi will see “highest” value declines over the next 12 months.

According to Nomura, in the past two months it has seen anecdotal signs that the mortgage financing market is starting to free up, but this is selective with banks still reluctant to take on too much real estate risk. It believes banks have got some lending comfort following the launch of Dubai government’s Tayseer (guaranteed funding) plan.

Currently, 114 projects have been registered with the Dubai Land Department (DLD) under the plan. For projects to be selected under Tayseer, they should be registered with the DLD; project not less than 60 per cent must be completed; have an escrow account; must be moving forward with construction plans with no issues with buyers.

Real Estate Regulatory Authority (Rera) registered properties (1,400 at one count), Dubai has seen completion of 129 projects since January 1, 2009. Rera has reviewed 450 projects in the last two years and 237 expected to be completed in due course. The emirate has seen cancellation of 217 as at May 31, 2011.

Many of the developments, Nomura said, expected in 2010 were delayed to 2011 and are now in the process of being handed over. This could lead to an average 68 per cent increase in reported revenues across the sector and act as a positive catalyst around quarterly results.

“We think the bulk of asset impairments have been taken through 2009 and 2010, and companies have emerged with cleaner balance sheets. We should see sector earnings also recover (somewhat), which may in turn lead to some near-term positive catalysts,” the report said. 

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