Dubai prices to drop further

Bloomberg

The number of people living in Dubai will fall 17 percent this year to 1.49 million, EFG-Hermes analysts said. The number working in construction may drop 30 percent as real estate and building projects are canceled or put on hold.

“Supply will far outstrip demand as the overall population declines,” analysts Sana Kapadia and Jad Abbas said in the report. “Minimal immigration is expected, especially due to the sharp contraction in the real estate and financial sector.”

The forecast comes as a squeeze in global credit markets last year slowed development in the emirate, home to the world’s tallest building, most expensive hotel suite and largest manmade islands. Dubai property prices are expected to “stabilize” in the first half of 2010 and may start rising by the second half or early 2011, EFG-Hermes said.

The population of the United Arab Emirates as a whole is forecast to contract 5.5 percent this year after increasing 7.7 percent in 2007 and 8.8 percent in 2008, EFG-Hermes said. Prices in Abu Dhabi, down 30 percent since their peak, are forecast to fall a further 10 to 15 percent, the analysts said.

“We believe the Abu Dhabi market has the potential to recover fairly quickly,” the EFG-Hermes analysts said. “We believe the strength and longevity of the real-estate cycle in Abu Dhabi is backed by the structural shortage of all the various types of real estate over the short and medium term.”