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UBS predicts 70% fall in Dubai house prices
Wednesday, 22 April 2009


Dubai house prices will fall by up to 70 percent from their peak levels in the fourth quarter of last year, Swiss investment bank UBS has predicted.

The Swiss investment bank said on Wednesday that property prices were more attractive than a few months ago, with developers offering more flexible payment terms too, prices would become even more attractive in the second half of the year. 

"We believe the majority of investors would prefer to stay on the sidelines and revisit potential purchase opportunities in second half of 2009," said a briefing note.

The note, written by analyst Saud Masud, went on to say: “As we move past the summer season and potential for expat exits picks up, there is a likelihood that rents begin to drop faster than home prices thereby compressing rental yields."

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Dubai residential property may trough at around AED500-800 per square foot, which is 70 to 57 percent below peak levels of around AED1,850 ($503.7) per square foot, the note said.

So far, prices are estimated to be down by around 25 percent, according to the report.

UBS described the recent bull run in UAE stock markets as unsustainable and downgraded property giants Emaar, Union Properties (UPP) and Aldar as a result.

Dubai based Emaar and UPP were downgraded to sell from neutral, while Abu Dhabi master developer Aldar was downgraded to neutral from buy.

It initiated coverage of Sorouh with a sell rating, citing near term lack of demand.

“We don’t yet see fundamentals improving, hence we view overall systematic risk as mispriced,” Masud said.

Residential vacancy rates in Dubai may reach 25 to 30 percent by the end of 2010 as a result of oversupply and a 10 percent decline in the city’s expatriate population.

UBS said it believed Dubai’s total liabilities currently stood at $112bn, which includes a $42bn cost to finish all residential properties.

The slowing real estate market will prompt consolidation among key developers among smaller ones, it added.

“In addition, we expect consolidation across the food chain including banks, lending institutions, media and advertising firms, contractors and designers,” Masud said.


 
Comments (20)

UBS on Dubai Prperty
Posted by Mohamed Djirdeh, Dubai, UAE on 27 April 2009 at 09:12 UAE time

Masud of UBS gave good estimates. For sure residential property prices and rents are going down till 12 at earliest. Not bad as all will come down to realistic levels which will help Dubai & UAE.
As Mcdonnell wrote authorities must do something about bank interest rates on loans, mortgages. What happened to central Bank 120 billion aeds pumped to the banks??? There must be stricter laws on banks rates.
New Occupation
Posted by Property Guru, Dubai, UAE on 26 April 2009 at 17:20 UAE time

There is a new occupation in UAE. Making a forecast about Dubai, the real estate market and commenting on it. Everyone finds it so interesting and engaging.

Let's move on. Instead of focusing or dreaming about bringing the old prices back, let's focus on effectively using all the properties that are ready or are getting ready.

You can make one time gain by selling a property, but you can make lifetime gain and develop economy of a place by efficiently using it.

Efforts of government and all individuals must be centred around making best use of the infrastructure that this real estate mania has brought into existence. Everything else will fall in place.
Predictions
Posted by Jebel Ali Baba, Dubai, United Arab Emirates on 25 April 2009 at 13:00 UAE time

Everybody can throw in some nymbers in the Dubai real estate game. My estimation is even lower than the UBS prediction. But at the end of the day the individual buyers decide when and for how much they will buy. With the worlds economic crisis ongoing the Dubai property prices might even go lower than expected. And the recovery of the local market might happen much later.
Be a spectator
Posted by Chris Chesson, Dubai, UAE on 24 April 2009 at 20:02 UAE time

The prices will drop to an abysmal level and to think otherwise is being plain gullible. The prices will further drop in 2010 so sit tight and enjoy the show as a spectator not participant!!!
UBS
Posted by andrew mcdonnell on 24 April 2009 at 16:53 UAE time

What are these "efforts and commitments to reviving the economy" increasing the interest rates to ridiculous levels thereby stabbing the market in the back ? We were promised US lending rates. UAE banks not lending, breaking agreements on service charge levels to squeeze honest people of of money ? Sad that people's opinions are allowed to be published....Dubai will always survive... like its been around for 2000 years or something, please get real. UBS will survive thats for sure, honesty talks, it shouts !! I hope it recovers but someone in authority must do something, words are cheap, action is required not spin.
So what are your aurguments?
Posted by Tehsin123, Dubai on 24 April 2009 at 10:17 UAE time

Paul, if you say that Dubai will be first in the world to come out, can you explain it further? What are your basis and facts for this estimation? We all like to see it like that but how.
Credibility of UBS
Posted by Paul, Dubai, UAE on 24 April 2009 at 07:35 UAE time

I totally agree with GS. These top so called 'bank Gurus' are only interested in sorting their own mess and thus creating such a bad image on Dubai. I think Dubai will prove a lot of people wrong and it will be one of the first countries to come out of this financial crises. It is sad to see such great 'Financial Gurus' trying to put such bad image in the people's minds - i would rather see them being more positive in their attitude rather than concentrating on the negativity of the problem. Yes, there is a financial problem and there were many financial problems in the past and strange enough, the curve always goes up.
I agree with this article
Posted by Tehsin Asghar, Dubai, UAE on 23 April 2009 at 17:55 UAE time

Its is simple. Property is not a money making machine. If something went so much wrong so high, its got to be corrected. Tell me one reason why should anyone buy a tiny three bedroom apartment for costing about a million dollar when same is available at one fourth of this price elsewhere in developed world. It was all un-natural, a bubble. If someone bought at high levels, he will surely not like this report but we have to open our eyes and face the real world and make sound investment decisions rather than speculative ones. Property is NEVER bought for speculation. It is bought for use, either rent or self living. STOP. Here 90% people (or even more) bought it just to turn it around and make millions. Sorry its a wrong asset class for this. Read about Tulip Mania in Holland a few hundred years ago. More recently, have you forgotten about internet stock bubble of late 90s? Many similarities. Greed is the worst enemy of your capital

This whole "crash" will be good for Dubai in long term.
Credibility of UBS
Posted by GS, Dubai on 23 April 2009 at 10:03 UAE time

Most of these so called intelligent and multinational financial institutions themselves have turnied bankrupt and are sitting with begging bowls in front of their governments to bail them out and are begging for taxpayer money to survive. Its these same "financial experts" like the author of this article who have ruined these great companies which were created by their forefathers over the past several decades. Now these failed "financial experts" are giving baseless opinion about Dubai without having any clue on the economy and on the efforts and commitments in place to revive the economy. Its sad that such people are allowed to make their forecasts and publish in media which spread negativity. There are hundred of thousand of expatriates who have been here for over 20 years and they will never abandon the city. Its people like these at UBS who just come here like honey bees when the going is good and disappear when times are a bit tough. Dubai will always surivive and will flourish with more prosperity.
Fantasy land
Posted by Ade, Dubai, UAE on 23 April 2009 at 09:41 UAE time

DG is falling into the same trap that many 'investors' did over the last few years. You're looking to buy into the vision of what Dubai may become and not what it actually is. You say it is one of the most 'happening cities', which suggests you believe the hype and vision of where the place is headed. However consider the possibility that what you see today is what you may still have in five years time and then say with honesty you want to buy into that...! If we get back to the simple reality of it being a nice enough place to live and from where we can service our business in the rest of the Arabian peninsular then it will be fine and maybe a fe people might wnat to buy property for that reason, but don't all try to believe we are building a bigger, better HongKong/Singapore/Shanghai/Vegas hybrid, beacuse that's the nonsense that's got the place into the trouble its in!
Ref Much Further to Go
Posted by Zia, Ajman, UAE on 23 April 2009 at 09:37 UAE time

I fully agree with Paul King that property price pendullum has much further to swing in the opposite direction.

Let me give you an idea in just 3 months prices in Discovery Gardens have fallen 50% for 1 BHK and Studios. People are now sending their families back home due to recession and job insecurity as they try to save. This is very much clear by seeing the movement of traffic between Dubai/Sharjah/Ajman.

UBS is very much right in predicting that market will crash upto 70% but i say that prices are going to fall back to the level of 2003 as expats start leaving by end of June which would be that you get 1 BHK in discovery gardens for AED 40 K and studios for 25 K.
Re. Apples with Oranges
Posted by SR, Dubai on 23 April 2009 at 08:25 UAE time

DG I think you are comparing apples with oranges! How much of a population are we talking of in Mumbai (18M or more?), and a real demand from this population, lets not talk about the supply. Do we even need to talk about the situation in Dubai in this context??
Re "When did UBS become a property valuation expert"
Posted by Mart on 23 April 2009 at 05:08 UAE time

DG,

Better to listen to a bank than a bunch of property salesmen who are desperately trying to flog overpriced villas and apartments. At least the bank has little vested interest in talking the market up or down. Compare that to a property salesman who hasn't made a sale for months. I know who I'd rather listen to.

Ultimately the bubble in Dubai property and the ensuing collapse in prices has little to do with supply and demand and everything to do with international banking and finance.

If you think prices are cheap DG - pile in and fill your boots. You should be able to negotiate some good deals, because you won't be bidding against anyone else!
Since whne did UBS become a property valuation expert ?
Posted by Geeza, London on 23 April 2009 at 03:13 UAE time

"Even from an Asian perspective the prices of quality properties in UAE are well below realistic levels."

Nobody even knows what a realistic level is for Dubai. To really judge where the market stands you need a 'local' benchmark, some historic data and with Dubai that amounts to about a 6 year bubble made by foreign investors, speculators, gamblers and money launderers. There is no benchmark. There is no 'trend' line going back 20, 30, 40 years. A buyer in Mumbai, London or Florida couldn't care less what a Dubai property is worth by comparison.

When the Titanic starts sinking, there are two kinds of people. There are those who frantically row away from the sinking ship, and there are those who choose to drink and dance deluding themselves into believing that the ship is unsinkable, even when they're knee deep in sea water.
marina crown and emirates marina
Posted by yusuf husein, london, UK on 23 April 2009 at 01:01 UAE time

I was in Dubai early April09 and the prices of unsold flats in Marina were at 750 per sq foot. Thats accoridng to the Developer in 2 buildings I checked out ( Marina Crown and Emirates Crown ). Quite a reduction from the 2000+ per sq ft ! Realsitically , I believe they will not fall further. About 700 per sq ft is where the floor should be.
Much further to go.
Posted by Paul King, Dubai, UAE on 22 April 2009 at 19:24 UAE time

The property price pendullum has much further to swing in the opposite direction, so this prediction could be out of date before summer's out! I remember people couldn't believe how high the prices had risen, now no one's going to believe how low the prices will fall. All the fundamentals are in place for a continued positive collapse of property values. 1. No real demand. 2. Tough lending conditions. 3. Falling rental rates, so very unattractive yields for serious investors. 4. Laughable quality of build. 5. Very high cost of living here now. 5. Very questionable sustainability of condition in this climate. 6. Very high maintenance costs. etc....... Strap yourself in and watch this ride fall lower & lower!
DG - put your money where your mouth is!
Posted by paul, Dubai, UAE on 22 April 2009 at 18:55 UAE time

DG, if Dubai offers such great value, I am sure you will put every last penny you have into buying everything you can?

Unless of course you did last year when prices were double what they are now?

Doh!
Since whne (sic)did UBS become a property valuation expert ?
Posted by SCC on 22 April 2009 at 17:25 UAE time

Grow up and get real.

Your analogy creates the stifling assumption that Mumbai properties are stupidly overpriced not that prices here are now cheap. Go and look at any website in any civilised (and many an uncivilised) country and see what your Dhs get. The cost of LegoLand Springs (Nirvana to those who live there I understand - that's why so many are on the market!) gets you a 4-5 bed house in an affluent county in Britain, a 4 bed waterside home in Florida or a farmhouse in the French Alps close to Geneva.

Please send me the pills you are taking as I also wish to live in cloud cuckoo land
Since whne did UBS become a property valuation expert ?
Posted by DG, Dubai, UAE on 22 April 2009 at 15:55 UAE time

It is predictions such as these which become self fulfilling prophecies.
Even from an Asian perspective the prices of quality properties in UAE are well below realistic levels. Compare a villa is Dubai to the same rate of a building 50 km away from the city center of Mumbai on the side of a Slumdog Millionaire railtrack - they are the same - and thats absurd.
UAE properties are at bargain prices and instead of driving the sentiment into further negativsm, what is needed is confidence in picking a bargain in one of the most happening cities of the future
Getting there
Posted by Misha on 22 April 2009 at 15:01 UAE time

This seems to be a more realistic assessment and therefor very welcome. Now lets work together to perform better than that.
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