Dubai waterfront home prices to stabilise in 2009

The prices of waterfront properties will stabilise by the middle of 2009 as bank liquidity strengthens and panic selling by speculators stops, say experts.

"Despite the current negative sentiment in the market we believe the underlying fundamentals are sound and the long-term outlook remains positive for Dubai," said Mathew Green, Head of Research and Consultancy at estate agent Cluttons. "After gains of about 40 per cent for waterfront properties over the three quarters of 2008, we are now starting to see prices dip at a number of projects. It's clear that some investors have over-stretched themselves and are now concerned about their ability to make future payments. This is resulting in cases of panic selling with some projects seeing steep declines in a short period of time. End-users will have a good opportunity to enter the property market by the middle of next year."

The average price of a four-bedroom garden home on The Palm Jumeirah during the first quarter of 2008 was Dh2,200 per sq ft, according to Cluttons. During the second quarter the price shot up to Dh2,700 and in the third quarter it climbed to Dh3,000. Now the price has fallen to Dh2,700.

Prices at Nakheel's Waterfront development have witnessed decline. The average sale price there in September was Dh3,150 per sq ft, according to Sherwoods Property Consultants. In October the price fell to Dh2,000 – a 36 per cent decline in a month. And this month the figure has fallen a further five per cent to Dh1,900.

"Lending is absolutely not happening at the moment. Banks and institutions have policies not to lend for certain villas or apartments and only when that eases a bit will prices in the market pick up momentum. We anticipate by the middle of 2009 lending should improve. It will, however, depend on how fast the government will release funds in the market for lending to end-users. For homes to be affordable to end-users, lending has to be eased from the government," Green said.

Asked to comment on the price movement on Nakheel's Waterfront project, a company spokesperson said: "Understandably under current market conditions, we are witnessing purchasers becoming more discerning about what they choose to buy. What we are seeing is a shift of type of investors; today's investors are more focused on long-term investment opportunities, and, as such, are not fazed by market fluctuations."

Location will become even more important and purchasers are expected to see a greater return on investments if they buy near waterfront and main transportation hubs. We are building to meet this need, she added.

The company is also taking a responsible approach in line with current global economic conditions and reassessing our immediate business objectives. "Given the negative market movement globally, we are acting responsibly and prudently meaning few new deals will be struck in the next few months. Our long-term business plans will remain unchanged," she said.

Sherwoods Managing Director Iseeb Rehman said: "Despite the downturn and lack of available funding we are still seeing opportunities for certain properties.

"All premium water-facing properties are coming back to realistic prices now. We have gone from an immature market to a mature one. The hit in the property market is a lot to do with the lack of available funding. For the borrower the banking system has failed miserably, although we are still seeing opportunities on certain properties. Many of the waterfront properties are off-plan and in that sense there is a shortage of supply of such properties in the market."

Other experts say there is no sales activity for waterfront properties at present and this, combined with attempts by investors to offload units at panic sale prices, is making it difficult to set a value benchmark.

Amr Soliman, Chief Executive of Blu Realty International, said: "People are trying to sell according to their liquidity needs and it is hard to put an average price on waterfront properties.

"A four-bedroom villa on The Palm Jebel Ali cost Dh16 million six months ago and is currently on offer at Dh12m. However, these transactions have not been concluded since there is no sales activity at the moment.

"What speculators are doing is dropping their premiums as much as they can in order to feel comfortable."

He said apartments on The Palm Jebel Ali had not been hit as badly as villas.

Analysts believe the prices of waterfront properties are coming under particular pressure because most units are off-plan and the sentiment surrounding off-plan projects is currently low.

Robert Mckinnon, Managing Director of Al Mal Capital, said: "It's difficult to predict a price drop as the situation in the market is unrealistic. People are selling according to their liquidity needs."

Sana Kapadia, a Research Analyst with EFG-Hermes, said: "A government official needs to reassure the market, then we will see a pick-up in realty pricing. Sentiment is really low currently and that will take prices down further. And off-plan properties are definitely more susceptible to price falls."

Green said: "Not all waterfront properties are luxury-end. There are some mid-price products such as Nakheel's Al Badrah district at Waterfront."

Al Badrah was the second residential district at the Waterfront to be announced and will be the first active gateway to the mega-development. When complete the district will contain 45,000 homes. The first phase of sales commenced in May with just over 1,000 apartments and townhouses.

Another waterfront property, Pixel Tower, is targeted at the mid-market segment.

Michael Grant, a partner at Cluttons, said: "Finding out how many speculators have invested in waterfront properties and how many are end-users will help to determine the prices.

"The problem that brokers such as ourselves face is that data is not readily available and the market is not very transparent. Even if we had a buyer list from Emaar or Nakheel they would not be able to tell us how many were end-users and how many were speculators.

"The government in recent times has done a lot to do away the speculators in the market. The recent regulations that the government has come up with have all been geared towards that."

James Knowles, Asteco's Sales and Leasing Director for waterfront properties, said: "Speculators who want to sell at lower premiums are doing so. Prices will go up once these speculators are finished with their selling and people with a long-term vision enter the market."