Dubai house prices seen falling 15pc

[Naveed Yaseen]

DUBAI: Soaring housing prices in Dubai are likely to peak in 2009 before falling at least 15 per cent as the Gulf emirate takes measures to weed out short-term speculators, a Reuters poll showed on Tuesday.

Residential property prices in the desert city, home to palm tree-shaped islands and an indoor ski slope, are likely to jump 35 per cent this year, according to the median of forecasts from 10 analysts at banks, investment firms and research institutions.

Price growth will probably slow to 8.5 per cent next year, when five of nine analysts expect prices to hit a peak after double-digit increases in each year since Dubai opened its property market to foreign investment in 2002.

“After four years of tremendous price growth the market needs a breather,” said Robert McKinnon, managing director of equity research at Al Mal Capital and one of the analysts questioned in the poll carried out from Aug 18 to 25.

“Dubai has taken some measures to tackle speculation which will have some impact on the market.” Six of the analysts say prices could fall at least 15 per cent from peak to trough, including one expecting a drop of more than 30 per cent. Two foresee no correction in prices at all and two anticipate declines of 10 per cent.

The Reuters poll found a 32.5 per cent chance of a correction in Dubai, one of seven emirates in the United Arab Emirates. Five said the chance of a correction exceeded 50 per cent.

“When the correction happens, a lot of existing potential buyers will start entering the market on more attractive prices and thus balancing the market going forward,” said Ahmed Badr, an equity research analyst at Credit Suisse in Dubai.

Speculators in search of quick gains have been a main driving force behind the 79 per cent surge in Dubai housing prices since the start of 2007, according to investment bank Morgan Stanley.

Last month, Standard Chartered Bank said Dubai was overheating because speculators were inflating prices of real estate still under construction, known as buying off-plan.

It recommended the emirate introduce a capital gains tax to deter short-term investors. This week, the Dubai Land Department announced a new law to regulate off-plan property sales.

Expatriates from neighbouring countries facing political instability, such as Pakistan, Lebanon and Iran, for instance, have long been lured to Dubai by its safe-haven status.

“There is enough demand to take the place of speculation, but the demand is at a different price level,” McKinnon said. Even as speculators exit the market, analysts said a sharp fall in prices was unlikely since the state exerts extensive control over supply. Most said residential prices in Dubai were slightly overvalued.

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