Dubai Prime Property Values Approach Floor, BofA Says

By Camilla Hall

May 17 (Bloomberg) -- Property prices in centrally located areas in Dubai may be reaching a “floor” after values dropped by 45 percent, Bank of America Merrill Lynch said.

“We see an emerging floor for prime assets, particularly in the retail sector, which has the smallest supply pipeline,” Dubai-based analysts including Karthik Sankaran and Abdelrali El Jattari wrote in a note to investors today. Growth in retail, trade and tourism should resume, helping the real-estate industry, the analysts said.

Dubai property projects stalled after the global credit crisis pushed up the cost of financing, prices plummeted and buyers defaulted on payments. The market’s collapse followed a construction boom that created thousands of homes just as demand began to evaporate. Average residential prices across the emirate may fall a further 15 percent this year, according to the bank.

Abu Dhabi-based Aldar Properties PJSC is the Bank of Americai Merrill Lynch’s “preferred developer” because “substantial negativity is priced in.” The analysts reinstated coverage of Emaar Properties PJSC, which opened the largest skyscraper this year in Dubai, giving the company a “neutral rating” and a 12-month share price target of 4.4 dirhams. Emaar closed at 3.75 dirhams yesterday and Aldar at 3.77 dirhams.

Migration within the United Arab Emirates will support established residential locations, though that isn’t a “panacea,” the analysts said. Dubai would have 44,000 vacancies this year “even if all qualifying expats from Abu Dhabi and Sharjah relocated to Dubai tomorrow.”

The completion of a “significant” number of new homes in Dubai later this year will put pressure on prices after they rose 2 percent in the first quarter, Colliers International said in a May 9 report.

Nakheel PJSC, the Dubai World-owned property company seeking to restructure $10.5 billion of debt, restarted work on projects that have been put on hold, Al Bayan reported today, citing people it did not identify.