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Foreclosures threaten Dubai house prices despite Q4 rebound

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Dubai residential property bounced back from the 50 per cent price haircut of the first year of the market crash and villa and town house prices rose by seven and 10 per cent respectively in the fourth quarter of 2009, although apartment prices still fell at a lower rate of four per cent, according to Colliers International.

The estate agent argues that the market is now showing signs of equilibrium and stability after the precipitous decline of the first year of the crash. But then any market that falls by 50 per cent is bound to have the worst behind it.

Oversupply

That means the downside to Dubai property now looks less scary. Another report earlier this week from Shuaa Capital forecast another 10 per cent decline in Dubai residential prices for 2010 due at least in part to an estimated 26,650 new units being completed at a time when the stockbroker reckons the population of Dubai will decline by 3.5 per cent.

Still looming over the market is the resolution of the Dubai World debt issues with a deadline set for the end of April, and the related matter of bank lending and the availability of mortgages.

Only yesterday what is thought to be the first repossession on the Palm Island was sold at a 35 per cent discount to the market price. Arabian Business reported that the 2,280 square foot, three bedroom apartment had ‘gone immediately for cash’ at $462,000.

Market observers are increasingly looking beyond the summer and Ramadan and towards the launch of the merged Amlak-Tamweel home loan institution as the possible renaissance of the Dubai real estate market, especially if mortgage rates come down at that point.

However, oversupply is likely to continue to be a dampener on the market for at least another 18 months as buildings started in the boom are completed and flood the market, particularly with new luxury apartments. At the same time foreclosure bargains will put fresh pressure on selling prices.

Bank relocations

Perhaps the real turning point for the Dubai residential market will come when more multinationals and banks begin to relocate staff to the emirate for regional expansion and, in the case of the banks to provide their employees with a low tax environment and reduce operating costs.

Given the continued problems in the global economy, with an economic upturn fragile at best, it could still be a few years before the Dubai property market shows real signs of sustainable recovery. What went up very dramatically has fallen in the same fashion and does not seem to have reached a bottom just yet.

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Written by Peter Cooper

January 20, 2010 at 9:15 am

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