Dubai property prices bottomed out in Q1

Report expects prices in Abu Dhabi to continue falling

Property prices in Dubai appear to have bottomed out in the first quarter of 2012 and are starting to firm up despite the existing oversupply and a decline in rents in the outskirts, a Kuwait investment bank said on Monday.

In contrast, the sector in Abu Dhabi is expected to maintain its downward trend over the next year due to fresh housing deliveries, Global Investment House (GIH) said in a 50-page report on the GCC real estate sector.

“We suspect Dubai residential selling prices could have bottomed out between 4Q11-1Q12 and are entering a stagnant phase of stabilization with selective price increases a pattern already materializing in well established areas and for selective properties,” the report said.

It said both villa and apartment offerings in the Gulf’s main business centre saw minor price increases in Q1 after stabilizing in the second half of 2011.

“We estimate the Dubai market is currently 20 per cent oversupplied, which means that 67,000 units are currently vacant. We expect this figure to increase as an additional 20,000 units are scheduled to enter the market in 2012 representing a six per cent increase on the current stock.”

GIH said the pace of decline in Dubai rents slowed down significantly in 2011 and is starting to shift gradually into what it described as selective increases in areas of higher quality and demand.

“We expect improvements in rental rates to be capped in the short term by new supply and declining rents in the outskirts of the city.”

In Abu Dhabi, rents are dropping on new supply and rental yields, currently at around 7.2 per cent, are being compressed converging with Dubai yields, which the report estimated at a current 6.6 per cent.

“In Abu Dhabi prices are still declining as new supply enters the market,” GIH said, adding that villa prices dropped seven per cent between 1Q11 and 1Q12. Apartment prices declined by about eight per cent during the same period and were down five per cent in 1Q12 alone on quarterly basis. “We expect further declines to materialize for at least the coming four quarters.”

According to the study, vacancy rates in the capital are estimated at 15 per cent of 4Q11 stock of 195,000 units. A fresh supply of 25,000 units is scheduled to enter the market in 2012, which has already impacted property prices in 1Q12. “We expect Abu Dhabi to be negatively affected by growing supply through to 1Q13 despite the current rationalization in property delivery.”

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