Some 2,000 homes were completed in Dubai in the second quarter and another 18,000 will be ready for occupancy by the fourth quarter, a report from property consultancy Jones Lang LaSalle said, adding that total current residential stock will rise to around 322,000 homes.

Office supply in Dubai is expected to grow by more than 30 percent over the next three years, it said.

Dubai house prices, already nearly 60 percent off their peak, are set to drop another 10 percent before stabilizing, Reuters poll showed.

Craig Plumb, head of research, Jones Lang LaSalle MENA, said, "Considering all real estate sectors in Dubai, performance was mixed this quarter, with some sectors - such as hospitality and retail - on the way to recovery, while others continue to decline. With GDP forecasts at 5 percent for 2011, Dubai's economy is already recovering and general market confidence remains buoyant, which is illustrated by the oversubscription of Dubai government's new $500 million bond issue. Supported by improving investor confidence and increased liquidity, we anticipate progressive stability for most asset types."

In Q2, 2011, Dubai's hotel market, which reached the bottom of the market cycle in Q1, continued to perform well, with occupancy rates rising to 81 percent and average daily rates (ADRs) stabilizing. Beach hotels registered the strongest improvement, evidenced by a 3 percent growth in ADRs and 11 percent growth in revenue per available room compared to the same period last year. Although supply is still expanding, the upward trend in tourist arrivals is expected to sustain the recovery.

The retail mall sector also performed well and has reached the bottom of the current cycle. Since there is no new major mall supply entering the market until 2014 and supported by the increase in tourist arrivals, rents levels, currently at AED1,885 per sq m, are expected to remain stable in the coming months, the Jones Lang LaSalle report said.

Turning to Dubai's office market, rents and occupancy levels stabilized in Q2, but this is only temporary as anticipated supply deliveries will put downward pressure in the short term. During 2011 alone, 600,000 sq m of new space is expected to be added to the current office stock of 5.6 million sq m. Over the next three years, office supply is anticipated to grow by over 30 percent, which will ensure tenant-favorable conditions in the coming years.

Meanwhile in Abu Dhabi, apartment rents fell nine percent in second quarter, as supply continued to outweigh demand, a report from property management firm Asteco showed.

Sale prices in the country's capital also dropped by 4 percent, with low transactional activity recorded in the last three months.

"The downward trend is unlikely to change in the short term due to further prime stock entering the market across a number of key landmark developments in the second half of the year," said Elaine Jones, the chief executive of Asteco.

Rents had soared significantly in Abu Dhabi since late 2008 due to a housing shortage.

Abu Dhabi has been investing billions of dollars in industry, infrastructure and tourism to diversify its oil economy and this has been attracting thousands into the labor force, pushing demand for housing up.

The UAE federal government last month announced the decision to extend the property visa period from six months to three years.

"This can only be a positive move and is expected to improve demand among foreign investors in the emirate," said Jones.