Residential rents of both apartments and villas are also forecast to drop by 25 per cent while commercial rents are poised “to fare even worse,” according to the report by Landmark Advisory, the research wing of a Dubai-based property company.

“Apartment prices will fall on an average by 20 per cent, with individual declines ranging between 10 and 50 per cent depending on the development. Average villa prices are likely to remain relatively stable with up to 10 per cent average drop with lower quality units bearing the brunt of these declines,” the report said. Villa rents are expected to fall on average by 25 per cent with low quality units hardest hit.

According to the report, residential prices peaked in October 2008, fell through to December, and continue to fall. “Assuming that the current downturn will affect prices in line with historical average of 35.5 per cent, then Dubai’s average price floor will fall from a peak Dh1,556 to Dh1,000 per square foot.”

Office sale prices are predicted to drop 35-40 per cent due to corporate downsizing as companies consolidate their offices to reduce overhead, the report said. Land prices that fell significantly in 2008 will fall by up to 50 per cent. While warehouse prices are likely to increase  30-40 per cent due to undersupply and untapped leasing potential, rents will rise by 10 per cent.”

Another steep fall, the report said, will be in the case of labour camps. Prices will fall by 30-40 per cent while rents are head for up to 35 per cent fall as construction contract volumes plummet by 75 per cent.

Landmark’s forecast is in line with those made by Global Investment House. Noting that properties in the secondary market have fallen as deep as 40 per cent, Global said: “Looking ahead in 2009, we expect to see further price correction for freehold properties in the range of 15-30 per cent, however, and rents to decline  by 15-25 per cent in 2009 due the lack of demand in line with the economic slowdown which forced many Dubai firms to downsize or halt their expansion plans which will likely result in a decline in the number of expatriates in Dubai.

The Landmark report notes that during the transition from a supply-driven property market to a demand-driven one, prices are no longer dictated by developers. “In the year ahead, consumer preferences, access to capital, and income levels will reshape demand patterns and redefine the market. As new supply encounters slowing demand, the market will reward developers who deliver quality and punish who do not.”

The report said the average income levels in Dubai were likely to stagnate due to redundancies and lower salaries. “The financial crisis has slowed demand: personal incomes, job security, and confidence are declining. An improvement of confidence among banks and investors will be the critical first step towards the recovery of the property market. Despite special access to government funds, banks have reverted to austere lending practices that restrict the availability of much-needed capital. The availability of financing will be critical factor for boosting the economy and rehabilitating real estate transaction volumes. Until the recovery of the property market, developers, investors, and landlords must adapt flexible and innovative approach to survive,” it said.

·         issacjohn@khaleejtimes.com