Foreigners walk along the Jumeirah Beach Residence in the Gulf emirate of Dubai on August 14. Just one year ago, property prices in Dubai were surging to record peaks undeterred by a real estate slump in major markets, but they have since gone into free fall and have yet to find the bottom. Market watchers in the former Gulf boomtown differ slightly on the magnitude of the decline so far, but all seem to agree that the prices of Dubai property, which was selling unchecked over the past three years, should drop further. Photo: AFP

Just one year ago, property prices in Dubai were surging to record peaks undeterred by a real estate slump in major markets, but they have since gone into free fall and have yet to find the bottom.

Market watchers in the former Gulf boomtown differ slightly on the magnitude of the decline so far, but all seem to agree that the prices of Dubai property, which was selling unchecked over the past three years, should drop further.

"The decline in prices still has a little bit to go before bottoming out," said Sana Kapadia, vice president of equity research at the regional investment bank EFG-Hermes.

"We expect a total drop in Dubai of between 50 to 60 percent from peak prices in 2008. We have seen a cumulative decline of 45 to 50 percent so far in Dubai," she told AFP.

Consultancy firm Colliers International echoed similar estimates in its quarterly report this month stating that the prices of Dubai housing units had dropped by half by the end of June, compared to peak prices last summer.

A report by Landmark Properties last week put the drop in villa and apartment prices in the same period at 44 and 36 percent respectively.

According to a price index set by the real estate brokerage firm, the average sale price for apartments has dropped from around 1,500 dirhams (405 dollars) per square foot to around 950 dirhams (257 dollars).

Prices are expected to fall further as market liquidity remains tight and costly. Mortgages are scarce, with interest rates between 8.5 and 9.0 percent, Landmark Properties said.

"Our forecast is that prices will have bottomed out by the end of the year, and should stabilise in the first half of 2010," Kapadia said.

This crash has dragged the emirate's economy into contraction after years of breakneck growth, driven mainly by a property sector benefiting from an abundance of cash from a huge regional oil windfall and foreign investments.

Economic slowdown has also led to job losses in the emirate, which had become a workforce magnet during boom time, leading to forecasts of a drop in population that would put further pressure on demand and prices.

A few areas, however, have seen flickering signs of recovery.

Prices in the recently completed upmarket neighbourhoods on the palm-shaped island Palm Jumeirah, which took a severe beating after shooting to record levels, rose slightly in the second quarter as investors with cash appeared to jump on bargains.

A report by the property management company, Asteco, last month said the prices of villas and apartments on the Palm have risen respectively by 20 percent and 7.0 percent in the second quarter, compared to the first quarter, when they tumbled up to 65 and 53 percent respectively from peak levels.

Asteco still however registered an average drop of 13 and 15 percent in the average value of villas and apartments in Dubai in the second quarter.

"It would be a terrible mistake to believe that we are out of the woods," said Jeremy Mayhew-Sanders, head of investments and development at Sherwoods Property, referring to such few recovery signs.

He said that some prices had improved due to an artificial shortage of units on offer in some areas, as low prices had pushed some owners to pull their units from the market.

But a shortage of new housing units -- a major catalyst for the surge in prices and rents over the past few years -- should be the least worry for buyers as thousands of new units are being delivered this year, with more scheduled to be ready next year.

"Many under-construction projects are nearing delivery time, bringing more units into the market... There is a lot of supply that has to be absorbed," Kapadia said.

Landmark Properties projects some 22,700 residential units to be delivered by the end of this year, with 40,400 others to be delivered in 2010, although many projects have reportedly been put on hold for lack of cash and interest.

Selling these units would be an uphill struggle for their owners as speculators, who were the real movers of the market, have vanished.