Total recovery in UAE real estate sector within 3 years

(MENAFN - Khaleej Times) A total turnaround in the UAE real estate sector will likely take place in two to three years, as property prices have not yet reached their bottom, while reluctance of banks to lend is also limiting demand, a management consultant company said.

"The property market in the United Arab Emirates, along with other emerging markets will continue to be quite volatile because it is difficult to predict exactly when or what kind of a turnaround it will be for Dubai for instance," Dr. Reinhold Leichtfuss, senior partner and managing director of the Boston Consulting Group Middle East, said at the recent Emirates Bankers' forum.

Leichtfuss said that there has been a pick up in rentals for residential flats/apartments in the last quarter, especially in quality destinations, but there is still the possibility that prices can further go south.

The downturn in Dubai's once-booming property sector had property prices slashed more than 50 per cent from their peak levels in 2008.

Developers and investors are pinning their hopes on a global economic recovery to revive interest in the sector, but prices are likely to remain flat, if not go down further as supply will be bolstered by projects that are expected to be completed this year and in 2010.

Deutsche Bank in June forecast prices to decline by an additional 20 per cent before the end of the year.

"We have seen a slow increase in people coming back into the market because there is already a big supply to begin with. Rents have gone up a bit in some preferred areas, but how that will develop in the next year is another question, as new supply will kick in," said Leichtfuss.

Leichtfuss said that lacklustre activity in the property sector is not being helped by the fact that banks are still unwilling to resume lending, and for some banks that have, the criteria has become more stringent.

"Financing for people who want to buy amid the downturn remain unavailable and expensive."

He said the hesitation by banks is understandable, with several financing institutions forced this year to raise their provisions for losses due to their exposure in real estate. However, banks should start to think long-term, 
said Leichtfuss.

"We are not seeing so many mergers and acquisitions activities, banks do not know the extent of toxic loan portoflio. But if one has the guts to invest in a downturn, acquisitions for example done during downturns clearly outperform those in upswing and bull phases. For predators, there is a time window for the next six to 12 months. The time to finance is now."

To help accelerate the recovery of the property sector, Leichtfuss suggested that banks can set up real estate funds to give investors access into the market, and benefit from the upside of investing in otherwise defaulting properties.

Source: Middle East North Africa Financial News (MENAFN).
Link: http://www.menafn.com/qn_news_story_s.asp?StoryId=1093280022.