Dubai home prices may slump 70% from peak, says UBS

Source : Business Times - 23 Apr 2009

Falling demand, bank mortgage lending may prompt developers to merge

Dubai house prices may slump as much as 70 per cent from their peak late last year as demand drops and banks fail to resume mortgage lending, prompting mergers, UBS AG said.

‘We are still in relatively early stages of the property down-cycle in United Arab Emirates,’ Saud Masud, a Dubai-based analyst at the Swiss bank, wrote in a report to clients dated Tuesday.

‘We believe risk-reward profiles are not yet compelling for investors to consider market re-entry, hence continued price declines are expected.’

Economic growth in Dubai, the second-biggest of seven states that make up the UAE, slumped after the worst financial crisis since the 1930s hurt its property, financial services and tourism industries.

The economy may contract 2 per cent to 4 per cent this year, Standard & Poor’s Ratings Services said in a report last month.

UBS downgraded Emaar Properties PJSC, the UAE’s biggest developer, and Union Properties PJSC to ’sell’ from ‘neutral’ as first-quarter results ‘will be disappointing’.

House prices in Dubai have slumped at least 25 per cent since their peak, and apartments have tumbled 39 per cent, UBS said.

Dubai’s majority expatriate population may drop 8 per cent this year and a further 2 per cent in 2010 as residents lose their jobs and leave within 30 days in accordance with the emirate’s visa laws, the Swiss bank said.

Property prices in Dubai quadrupled in the five years to September 2008, helped by new laws allowing foreigners to own property and a growing expatriate workforce.

Falling property prices now raise the prospect of rising loan defaults.

Property loans of UAE banks, including mortgages, stood at 172.74 billion dirhams (S$70.92 billion) at the end of 2008, or 17.8 per cent of gross domestic product, the central bank said.

Dubai may see ’significant consolidation among its key developers in addition to smaller less visible ones,’ UBS said.

The analyst started Abu Dhabi-based Sorouh Real Estate Co with a ’sell’ recommendation and cut Aldar Properties PJSC to ‘neutral’ from ‘buy’.