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HSBC says fears of a property crisis in UAE are ‘overblown’

LONDON, September 7, 2015 [Bloomberg] –  Fears of a crisis in the United Arab Emirates (UAE) real estate market are “overblown” because the impact of weaker currencies and slowdown in transaction numbers is lower than some reports suggest, HSBC Holdings Plc said.

Transactions fell by 15% in the year through August for the UAE and sales prices are down 9% in Dubai, HSBC said in a research note published today. The main foreign buyers of Dubai property are Indians, Britons, Pakistanis and Saudis, who have not been impacted by weakening currencies, HSBC said. The possible removal of sanctions on Iranian buyers could also lift demand for Dubai real estate, the bank said.

“Two myths need to be debunked – transactions are down just 20% compared to some reports of more than 50%, and most currencies have not fallen significantly, especially the currencies that matter most,” HSBC analyst Patrick Gaffney said.

Over the past decade, Dubai’s property sector has swung from boom to bust and back again. Price gains in the two years through 2014 recouped much of the losses incurred in a 2008 collapse that pushed the city to the brink of bankruptcy. In a bid to cool the market, regulators introduced caps on the size of mortgages and doubled transaction fees to deter speculation, leading prices to start falling from late 2014. Home prices dropped by 12.2% in the 12 months through June, the biggest decline among 56 residential markets tracked by broker Knight Frank.

Sales declined about 6% year-on-year in the third quarter, while residential rents have remained stable, CBRE said in a separate research report also published today.