Monday, March 01, 2010

Predictions for Dubai Real Estate Sector in 2010

The latest predictions by a Dubai based real estate consultancy firm reveal that there is still some way to go before things pick up again in the beleaguered real estate sector. Owing to past commitments, there is at present an oversupply of residential units in the emirate, and the still sluggish economy means that the real estate sector will continue to struggle through 2010. Indeed, some experts have stated that they do not expect to see a turnaround before mid 2011.

The present realities of the real estate sector very much reveal that sale prices and rents for villas, apartments and offices will continue to fall. On the average, apartment prices in Dubai are expected to decrease by as much as 20% over the next 18 months. Meanwhile, it has been noted that villa prices in Dubai have also stagnated, showing a marginal increase of just 0.2% in the 4th quarter 2009.

Location is still a key factor, as there is a variance of pricing based on whether the villas are situated along coastal communities such as Sheikh Zayed Road, or further inland where the prices have decreased.

At the other end of the market, sale and leasing transactions for commercial property remained significantly low in Q4 2009 with average sale prices down by 5.1%, and office rents dropping 8.4%. This trend is expected to continue as an estimated 48 million square feet of office space will enter the market over a four-year period.

Possible good news for apartment renters is that average rents are likely to decline as more residential supply is delivered at a time of weak demand fundamentals.

The Government of Dubai has announced a 6 percent cut in state spending for 2010 in response to the strain on its debts in the aftermath of the real estate collapse. State spending is projected to be $9.64bn in 2010, compared to $10.3bn in 2009. Dubai Real Estate sector contributed as much as 50% to the emirate’s GDP in its heyday.

There is a dire need to rebuild confidence and greater transparency in the UAE's fast evolving real estate markets. Although the rate of decline may be comparatively less in 2010 than that experienced in 2009, what is needed for a recovery is stronger economic fundamentals, better long term policies and additional demand from both investors and tenants. Once these are in place, the markets will mature. Investors will also need to change their attitude and take a longer term view, as there will be few opportunities for price spikes as the level of returns becomes more stable and sustainable.

About the Author
John Parker is expert analyst and market researcher on Serviced Offices and Dubai Apartments for Rent Market, he writes Dubai property articles. He works for Kleindienst Real Estates, one of the most growing real estate firms in UAE.