DUBAI: The United Arab Emirates’ construction sector has been hardest hit by the downturn in the Gulf Arab region, with more than 500 projects on hold or canceled, Dubai-based research firm Proleads said on Wednesday.

With a total value of around $900 billion, 1,372 building projects are under construction or in bidding across the commercial, hospitality, residential and retail sectors in the UAE, and 566 projects have either been shelved or postponed, Proleads said in a report.

Neighboring Saudi Arabia has total projects worth more than $387 billion across the four sectors, with 442 in construction or bidding, the report said.

In Kuwait, with total projects worth more than $114 billion, 90 are in construction or bidding and 18 canceled or on hold. Qatar has seven projects shelved or on hold and 124 are in construction or in bidding out of total projects worth more than $42 billion. With total projects worth more than $38 billion in Oman, 95 are in construction or bidding with eight on hold. There are no cancellations, Proleads said.

Bahrain’s total projects are valued at more than $36 billion with 148 in construction or bidding and 54 canceled or on hold.

Proleads said in July over 400 projects worth more than $300 billion had been placed on hold or canceled in the UAE.

In a related development, EFG-Hermes said the property market in Dubai will remain weak to stable, at best, over the next 12 months, and markets in Abu Dhabi could also face some pressure from downward pricing and rental trends in Dubai, said EFG-Hermes. “We do not anticipate any strong recovery in Dubai selling prices before the second half of 2010 at the earliest,” analysts Sana Kapadia and Jad Abbas, said and revised their ratings and fair values on the UAE construction sector. The analysts said balance sheet constraints of property companies in the UAE may put an effective cap on short-term performance until liquidity conditions improved.

In Abu Dhabi, end-user demand in the property market looks set to pick-up, due to greater availability of mortgage financing, a short-to-medium term supply-demand mismatch and a structured pace of development, the analysts said.

While the Abu Dhabi market is fundamentally strong, the knock-on effect of lower rents in Dubai could precipitate a supply-demand driven market correction, as more residents and businesses choose Dubai over Abu Dhabi, the analysts added. The once-booming real estate market in Dubai, one of the UAE’s seven emirates, has been hit particularly hard by the global financial crisis, with prices tumbling, developers canceling projects and jobs getting slashed.

Any recovery in the country’s property market would go some way toward easing investors’ concerns about the health of the second-largest economy in the Gulf Arab region.

Kapadia and Abbas, however, said the sector at large had performed relatively well so far.

“The recovery from the bottom has been rational and gradual as valuations re-rated dismissing a bankruptcy scenario for some developers,” they said. The analysts said they adjusted their assumptions relating to delivery, design, pricing, volume and timing. They cut their long-term rating on Aldar Properties to “accumulate” from “buy,” while they upgraded their short-term rating on Union Properties to “neutral” from “reduce.”

The analysts said Dubai’s Arabtec Holding remained their “top pick” in the sector and kept their short-term and long-term “buy” rating on the stock.

Meanwhile, the United Arab Emirate’s central bank will keep interest rates low to spur growth, Gov. Nasser Al-Suweidi was quoted as saying on Wednesday, as the economy faces the possibility of contraction in 2009.

Al-Suweidi’s comments were carried in Arabic language daily Al-Bayan. The UAE’s overnight repurchase rate stands at 1 percent. In contrast, interbank lending rates stand at 2.081 percent for three months, 2.356 percent at six months and 2.637 percent for one year. “The prospects for UAE’s economic growth will be reduced in 2009 from a high single-digit figure to a low growth rate or maybe even negative, due to the current global financial crisis,” the newspaper quoted Al-Suweidi as saying.

The central bank governor said monetary policy will aim to keep official interest rates at low levels in order to revive economic growth.

Deutsche Bank economist Caroline Grady projected UAE growth at 0.3 percent for the year, compared to 7.4 percent in 2008, based on an average oil price of $63.6 for the year.

But she said it was difficult to gauge the impact Dubai — which accounts for about 30 percent of the UAE’s gross domestic product — would have on overall growth.

“There’s no monthly real economy data in the UAE so it’s very hard to know quite how hard Dubai has been hit, there’s no trade, no PMI (purchasing managers index). Credit has pulled back very sharply across the UAE,” she said from London.