Dubai property fall is unavoidable

The rapid deterioration in sentiment in the UAE has caught even the most pessimistic of observers by surprise.

Predictions that the once unshakable real estate market in the emirates, particularly Dubai, was set for a slowdown have come to fruition even more quickly than anticipated, despite the repeated assurances of senior Dubai officials that the market's onward march would not be deterred.

Reports have put the fall in property prices at 4 per cent in Dubai, and 5 per cent in Abu Dhabi, in August alone. Falls in September and October are likely to be even greater.

The first wave of redundancies at developers is now under way and project work is already slowing on some of Dubai's signature developments. By pulling credit lines to employees at some of Dubai's biggest companies, Emirates NBD, the region's biggest bank by assets, has signalled that it expects the market will continue to fall.

As the emirate's economic growth slows, more lay-offs will undoubtedly be announced.

The number of new workers arriving in the emirate will also dwindle, putting further down-ward pressure on real estate in the emirate.

Other banks in the country now face the choice of whether to try to attract the customers Emirates NBD is passing up, or also view them as too risky. Given that confidence in Dubai's real estate sector is now so low, they will be tempted to steer clear of customers who may quickly find themselves unemployed.

The Central Bank of the UAE says it is looking at ways to prop up the real estate sector, but it is difficult to see what it can do to persuade people to buy in a market that could be on the edge of freefall.

The best it can do is to allow the market to quickly find its floor, so the recovery can begin, and avoid falling into the trap of using government intervention to take on the impossible task of stopping a sharp correction in an overvalued market.