UAE property sector yet to bottom out: Arqaam

The UAE’s beleaguered property sector hasn’t bottomed out yet despite prices down 60 per cent from their 2008 peak, according to the Dubai-based investment bank Arqaam Capital. “We think there is a further leg down to the UAE property market before residential prices and rents recover,” the specialist emerging markets investment bank said in a note issued today.

Arqaam added that it expects property prices and rents in the UAE to go down by as much as 20 per cent next year on fears of a supply glut. “We see a further 15-20 per cent in downside to prices and rents in FY 11-12e,” the note said.

“Despite some sparse evidence that secondary market residential prices and rental rates have stabilised in the first half of 2011, incoming capacity (+17 per cent and +32 per cent in Dubai and Abu Dhabi, respectively), remains substantial, even when adjusted for project cancellations and delays (which constitute approximately 50-60 per cent 2005 planned deliveries, by our estimates),” it said.

The bank said it expects “genuine revival triggers” to appear only in a broad macroeconomic recovery, “via job creation, a rise in discretionary spending, continued regulatory evolution, resumed mortgage lending, and growth in tourist flows (both within and to the MENA region)”.

Arqaam Capital also raised concerns about the fierce competition among construction firms and its impact on their bottom line, especially in Abu Dhabi. “Abu Dhabi is fast becoming the worst construction market in the GCC, after Dubai,” the bank said. “Cut-throat price competition and a scale-down in government plans by 30 per cent during the year should have their repercussions on backlog and margins on [Arabtec] and [Drake and Scull International] (15 and 19 per cent Abu Dhabi exposure H1 11A). The withdrawal of the Guggenheim Abu Dhabi tender is a salient example,” it said.

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