House prices in the emirate’s once-booming property sector are unlikely to show a clear upward trend until at least 2014 as demand for property remains muted amid growing uncertainty, analysts said. Two years ago industry watchers were expecting the bust to last until at least 2011.

Dubai, famed for extravagant projects such as the world’s tallest tower and lavish hotels, had shown small signs of recovery with house prices rising in certain areas and the number of transactions rising.

Dubai has also been seen as a safe haven as the winds of change sweep the Arab world.

“We are not out of the woods. The crisis in Europe will add uncertainty and if anyone is planning to buy a property here they may hold off until it is over,” said Majed Azzam, senior analyst, real estate and construction at AlembicHC in Dubai.

“In light of the global crisis we have pushed back our expected timeline for a turnaround.”

But any severe deterioration of the global economy and the euro zone debt crisis is unlikely to have as severe an impact on Dubai’s property sector as the recent global financial crisis, analysts and experts say.

During that crisis house prices plunged some 60 percent from their peaks and billions of dollars worth of projects were put on hold or canceled.

“Property prices in Dubai have become attractive and Dubai, and the UAE as a whole, are seen as a safe haven during this regional turmoil. This is very positive for the property market here,” said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.

“If the euro zone debt crisis deteriorates then we could see oil prices falling sharply, which would have an effect on the property sector here, but I don’t think we will see the exaggerated falls which we saw in 2008 and early 2009.”

“The downside is limited provided there isn’t a conflict in the immediate area.”

Dubai house prices fell 8 percent in the second quarter from the same period last year, property consultancy Colliers International said in a recent report.

“If the eurozone gets worse then that could potentially put months or even years on to it (recovery),” said Saud Masud, sector head real estate at Rasmala Investment Bank.

“I think it will be 2020 when we see property prices get back to 2008 levels and that will be assuming there is five or six years of robust recovery.”

Property prices soared after the emirate opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments. From start-2007 to mid-2008, prices rallied almost 80 percent, Morgan Stanley estimates showed. Business was booming.

And three years ago billions of dollars worth of projects were launched at the emirate’s glitzy property show Cityscape, including a 1 km-high skyscraper by one of Dubai’s largest property companies, Nakheel.

Nakheel, which completed a complex debt restructuring last month, launched a more modest 102 townhouse residential project at this week’s show, where most exhibitors showcased existing projects rather than launching new ones.

“We have to launch projects according to the market needs. 2008 market was totally different from 2011,” Nakheel’s chairman Ali Rashid Lootah said at this week’s show. 

Dubai’s residential property recovery is already being hampered by oversupply — a third too much supply while prices are expected to fall by a further 10 percent this year, a Reuters poll showed in July.

Some 5,000 new homes are expected to hit Dubai’s market by year-end, property consultancy Jones Lang LaSalle said in a recent report, with a further 27,000 seen in 2012, taking total stock across Dubai to around 358,000 homes.

AlembicHC’s Azzam said it would take at least three years for supply and demand to reach equilibrium.

The oversupply situation is no better in Abu Dhabi, which was relatively immune from the problems that beset Dubai in 2008.

Despite the emirate having one of the highest per capita incomes in the world, scores of new buildings, nearly complete, may remain unoccupied for some time.

“The threat of increasing supply and liquidity constraints persists in Abu Dhabi’s real estate market. A number of projects come online this year pushing rates down from unsustainable highs,” said David Dudley, head of Jones Lang LaSalle in Abu Dhabi.

Prices continue to decline as supply increases and demand remains weak, with investors waiting for prices to level with Dubai.

Residential real estate prices have slumped about 50 percent in Abu Dhabi, the capital of the UAE, from their peak in 2008, according to property management firms and analysts.

Further weakness appears inevitable.

“Rents and prices could decline a further 10 percent over the coming 12 months as supply continues to hit the market, while funding remained tough,” said Gurjit Singh, chief operating officer of Sorouh Real Estate, Abu Dhabi’s second-largest developer by market value.