Dubai house prices are likely to fall further this year as tougher mortgage lending rules, higher transaction fees and rising living costs dampen demand, a report from consultants Cluttons predicted on Wednesday.
The emirate's property sector, which went from boom to bust to boom again, has steadied since the government introduced measures last year to cool the market.
Home values slipped 0.8 percent in the first quarter, leaving average prices 0.5 percent lower than a year earlier and 19.4 percent below the 2008 peak, Cluttons estimated.
Increased supply, the slow motion impact of the new regulations and ebbing sentiment have "weighed heavily on the emirate's residential market", the report states, noting average house prices rose 3.4 percent in 2014 versus 51 percent in 2013.
The report describes the sector's 2015 outlook as "somewhat mute", predicting houses would bear the brunt of price decline although demand was expected to remain "very stable in the medium to long term".
In 2014, Dubai doubled property registration fees and raised minimum mortgage deposits.
Buying a house for 5.5 million dirhams ($1.5 million) now requires upfront equity of 42 percent versus 20 percent previously, Cluttons estimates.
The impact has been marked: about 1,300 houses changed hands in 2014, down 52 percent from a year earlier, while the number of transactions in the first quarter was down 36 percent year-on-year.
"Sustained growth in rents over the past 18 months has exacerbated the challenges of amassing a deposit, while the cost of living has continued to rise," Steve Morgan, Cluttons Middle East chief executive said in the report.
"There may be some respite as the dirham continues to strengthen, driving down inflation."
The UAE dirham is pegged to the dollar. The U.S. currency is up 19 percent against the euro over the past 12 months.
"Sterling, the Indian/Pakistani rupee and euro continue to lose ground to the dollar, making a Dubai-based investment significantly more expensive than this time last year," Faisal Durrani, Cluttons' international research and business development manager, said in the report.
After Emiratis, Indians and Britons were the biggest buyers of Dubai property last year, accounting for 22 and 11 percent respectively of the total transaction value, official data shows.
Cluttons forecasts 12,600 units will be handed over by the end of 2016 and a further 15,800 completions are scheduled for 2017-2018, predicting oversupply was unlikely because Dubai's population is expected to grow.