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UAE Property Slump may be Short-lived

DUBAI - The property slump in the 
UAE is a painful reality check with all the signs pointing to a more severe global recession in 2009, but the sting is likely to be short-lived, said EFG Hermes.

“We do not believe a market crash 
will endure,” EFG Hermes said in its latest research on the UAE property sector.

It said the confidence crisis could be hurdled if immigration holds up, liquidity is pumped at both the corporate and retail level, and if legal standing of property ownership and transactions improve.

EFG Hermes forecast Dubai property prices to slide 15 to 20 per cent in 2009, but may only last in the early months with developers already heeding the market after their momentum this year was abrupted.

“Market segmentation looks set to move to more affordable housing and rental projects, facilitating a more sustained pace of development.”

It said the continued pick up in the rental market will prop up Dubai property prices with no signs of rental inflation slowing down with demand growing in outskirts such as Jebel Ali and in the Dubai-Abu Dhabi border.

“This impact of persistent rental 
inflation helps to address the demand question in part, helping also to provide support to the fragile property sector.”

Still, Dubai faces steeper challenges than Abu Dhabi that could accelerate price corrections.

These include overall weaker global confidence, a potential mass exodus of “speculative froth” from the market, a transfer of liquidity from real estate to other asset classes, a growing number of defaulters and big price drops for off-plan properties.

Cautious buyers are also opting for completed properties as banks and mortgage companies tighten purse strings. High-end properties are likely to be pummeled by price corrections as demand shifts to rentals and on affordable housing.

Abu Dhabi is also experiencing some weakness, but is better off than Dubai.

With no new major additions of residential units expected until 2010, prices are seen climbing 15 to 20 per cent in 2009.

“Abu Dhabi is experiencing a much more visible shortage of quality real estate space .”

EFG Hermes said investor confidence in the sector can be restored if proper measures are taken.

Injecting liquidity to the banking 
system, already done via a Dh50-billion emergency borrowing facility, and a Dh70-billion direct depositing facility — can be matched by other federal facilities.

Federal governments can also guarantee working capital requirements 
and absorb excess defaulted inventory to ensure the liquidity status of developers.

Despite the slump, the UAE growth story still holds true, said EFG Hermes.

“UAE offers a multitude of incentives in terms of a business-friendly environment, quality of lifestyle and overall growth prospects of businesses and residents alike.”

· rocel@khaleejtimes.com