Below is an extract from Morgan StanleyUAE PropertyChill winds...

Below is an extract from Morgan Stanley

UAE Property
Chill winds rapidly changing
landscape
In this report we summarize what we consider are the
most important developments in the UAE property
market, and shed some light on what to expect from
Emaar’s 4Q08 numbers and likely operational
performance over the next 2-3 years.

UAE property prices have fallen off a cliff
As we expected, property prices in the region have
come down across the board since their peak in
September 2008, albeit at a much faster rate due to the
global financial crisis. According to our proprietary
property price index, asking prices in Dubai have fallen
by an average of 25% and 20% in Abu Dhabi since their
peak in September 08 (see facing Exhibits). Moreover,
anecdotal evidence suggests sharp falls in transaction
volumes in 4Q due to deteriorating economic conditions,
the disappearance of speculative buying and the lack of
financing.
Signs of Dubai rental market weakening, but not yet
Abu Dhabi: Rental rates started to ease in Dubai in
December 08, where we expect average rents have
fallen by 7% on average since their peak last summer.
This is explained by the growing supply of new
properties coupled with decelerating demand and
reduced affordability. Abu Dhabi seems more resilient
so far, given its different demand/supply fundamentals.
Project delays and new launches halted: Property
developers have started to announce project delays in
response to falling demand and deteriorating market
conditions. According to Zawya, US$263 billion worth of
projects in the UAE have been delayed/cancelled, with
all the recently announced mega projects, including
Meraas Jumeirah Gardens (US$98bn) and Nakheel’s
Harbour project (US$38bn), put on hold.
Emaar 4Q08 results: The market may have already
factored in a sharp fall in the group’s 4Q08 numbers, but
there are a number of pertinent questions that need to
be answered by management, in our view. In particular,
given the challenging operating environment, an update
on its future strategy is particularly pressing, we think

UAE property market hit by the global downturn
There have been a number of developments over the last few
months that have dramatically changed the sector’s
fundamentals including:
• deteriorating economic conditions adversely affecting
affordability, with a lower oil price and a global
recessionary environment
• job cuts that have put pressure on the ‘effective’ demand
side
• unavailability of mortgages, further deterring buying
activity
• speculators heading for the exits following property price
stability that started in the summer
• less clarity on the residency visa issued to new buyers
• US dollar appreciation against major and emerging
markets currencies
• corruption and corporate scandals in a number of
property companies
All of these factors have resulted in a worse than expected
performance in the UAE property market, especially in Dubai,
which is also facing potential oversupply. In 4Q08, property
prices corrected sharply downwards, rental rates eased in
Dubai and there was an increase in the rate of announced
projects delays/cancellations.
1. Property prices have fallen off a cliff
Although it is difficult to determine the actual change in property
prices, given the lack of official data about transactions and
prices, we attempt to shed some light on market activity and
recent changes. It is worth noting that it is difficult to track the
number of transactions and their prices given the lack of official
data to date. As transactions recorded in Dubai’s Land department
on a daily basis represent registration transactions rather than
actual transactions, gauging the actual level of market activity
can be misleading. That said, anecdotal evidence suggests a
fall in the average number of transactions, with no available
financing.