A new report forecasts further declines in the UAE’s property market.

Home prices are likely to drop an average 25 to 30 per cent before bottoming out, concludes a report released yesterday by the investment bank Rasmala. The market will be buffeted by “depopulation risk, deleveraging and heavy pipeline-delivery schedules leading to demand-supply imbalances”, said the analysts Saud Massud and Divya Arora.

Rasmala offers a more pessimistic view than some other property analysts, although most agree there will be further declines. Dubai prices in some locations will be “more or less stagnant”, while those in the most recent developments will decrease, the property management firm Asteco predicted in a recent report.

But most agree a wave of new construction will continue to put pressure on prices. Jones Lang LaSalle forecasts another 25,000 units will be completed in Dubai this year.

Home prices in the UAE are down 45 to 55 per cent from peak levels, Rasmala said. Prices will eventually drop 70 per cent from peak levels, it added, “implying another 30 per cent potential downside to house prices from current levels”.

But Dubai property is a more attractive investment than Abu Dhabi, Rasmala believes.

“In our view, Dubai offers broader available property options at relatively lower price points,” the report said.

Although Abu Dhabi does not have the same oversupply issues as Dubai, “in terms of volumes, their demand dynamics almost mirror each other: a low appetite for new housing as financing remains tight and negative equity concerns linger”, Rasmala said.

Declining populations in Dubai will exacerbate the situation, Rasmala predicts. Dubai’s population will fall by 5 per cent this year, to 1.33 million, down from 1.59 million in 2008, it forecasts.

“We believe the depopulation trend in Dubai is likely given 90 per cent of the population is made up of expats, and more than 40 per cent are directly and indirectly employed by the property and construction sector,” Rasmala said.

The report compared the UAE to Hong Kong and Singapore, which saw population declines after economic downturns.

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