Real estate prices in Dubai fell 1.7% in February and could fall up to 30% in next two years in a sign that the emirate’s beleaguered property market is still not back on track.

The latest figures from Deutsche Bank show that although the pace of decline is slowing there is still likely to be further downward pressure on the market.‘We do not see any improvement in fundamentals that could trigger a recovery, the bank said in its report.

Residential property prices in Dubai have now fallen by 62% since their peak in the middle of 2008 after the global economic downturn caused mortgage lending to dry up and speculative demand ground to a halt.

And in a separate report it is predicted that prices are likely to decline a further 25 to 30% this year and in 2012. The gloomy prediction from investment bank Rasmala is based on the fact that there is too much supply and not enough demand.

‘We believe the UAE property sector is undergoing mid-cycle dynamics. House prices have corrected by 45 to 55% but rising oversupply could see a further 25 to 30% drop in the next two years,’ Rasmala said.

‘While supply dynamics may be somewhat different for Dubai and Abu Dhabi in terms of volumes, their demand dynamics almost mirror each other in terms of a low appetite for new housing as financing remains tight and negative equity concerns linger,’ the report added.

Developers are, however, seeking to sort it out. The supply of fresh real estate in Dubai will tumble by nearly a third this year as developers hold back units in a bid to manage the city’s saturated property market, according to real estate consultants Jones Lang LaSalle.

The supply of residential, retail and hotel real estate is expected to be 32.2% lower than in 2010, a report from the real estate consultancy showed.

‘The supply clearly is being held back. That is partly due to the market factors and it is partly due to the fact some developers have had trouble financing projects and making the last payments,’ said Craig Plumb, head of research at JLL. ‘There are a number of buildings that have been completed and have not been released to the market,’ he added.

But thousands of units are scheduled for release this year, despite an estimated 40% vacancy rate in homes and offices across the emirate. JLL said some 25,000 residential units will be released on to the emirate’s property market this year, but this is a drop of 31% when compared to 2010.

The hotel market will see the largest decline in supply, with 3,400 new rooms expected to come on stream in 2011, around 55% less than the 7,700 that came online in 2010.

Plumb said an added number of new units may be held over to 2012 in a bid to pace the supply being released on to the market. ‘Some space will simply get pushed to 2012. The supply we have for 2011 will probably finish up less than we are forecasting,’ he explained.

In Abu Dhabi, the situation is reversed, JLL data shows. The capital will see a 108% surge in new real estate this year, driven by its residential market. Some 25,000 new houses and apartments are due online this year, a massive 346.4% rise in the 5,600 units released last year.

‘Dubai is past the peak of its annual pipeline of new supply while Abu Dhabi is still approaching the peak for new supply,’ the JLL report said.

Industry experts have long acknowledged the oversupply problem facing Dubai. However, there is little agreement on how long it will take to clear the backlog. Mohamed Alabbar, chairman of Burj Khalifa developer Emaar Properties, said in November it would take at least 20 months for the city to absorb its surplus stock.

Chris O’Donnell, chief executive officer of debt hit developer Nakheel, said in December that the figure was closer to three to five years.