-Consensus supply expectations are overstated in our opinion. We see only 60K additional units into 2011e, cross checked against industry balance sheet.

- Agreed prices +9% since April 09 bottom, following a 30% peak to trough drop. Consensus estimates still call for a peak to trough drop of 40%-60% and no recovery prior to 2010/2011.

- Rentals down -38% YTD, yield compression from 7% in March 09 to 5.6% in October 09, implies upward revision of sector NAVs.

Dubai consensus supply forecasts inflated, we estimate an additional 60K units to come to the market by 2011e. We cross check our numbers by working backwards from the industry balance sheets (Nakheel, Dubai Holding, Emaar, UP and Deyaar), using development properties and land receivables as a proxy for upcoming supply, covering both master and single property developers (please refer to page 03). Our Transaction Price Index suggests that the Dubai property market bottomed out in April 09 and has since rebounded by 9%, following a 30% peak to trough drop. There appear to be several factors at play, including: 1) improving sentiment and risk appetite, 2) a negative real interest environment, 3) steady volumes, and 4) attractive rental yields.

Mortgage values and volumes have steadily recovered to pre-crisis levels, reaching 24% and 14% in October 09, respectively, compared to 7% and 6% in April 09. In absolute terms, mortgages in freehold areas increased to AED340m in October 09 from a low of AED190m in April 09, while volumes hit a two year high of 374 units in August 09 (Oct 09 at 191). Liquidity returning to the system appears to be the driver of renewed interest. Mortgage providers have more recently raised their LTVs, relaxed their credit norms, and lowered their rates in line with a downward trending EIBOR.

A steady decline in the available for sale stock along with steady volumes resulted in a drop-off in the take-up ratio from a high of 10.8 months in December 08 to 4.4 months in Oct 09. Dubai advertised listings saw a 54% decline from 5,862 listings in January 09 to 2,676 in October 09, despite more stock being added.

We feel this indicates that the stock is clearing and/or listings are being pulled off the market. In any case, the distressed stock seems to have mostly cleared, which is supportive of pricing.

Asking rentals in Dubai have retreated for nine months in succession since the start of the year, dropping 38% YTD, but the pace of the decline seems to be slowing (-2% in Sep 09 and Oct 09). Consequently, rental yields compression persisted over the past few months (down from 7% in March 09 to 5.6% in September 09) as rental
declines outpace those of prices.

Yield compression against an improving macro backdrop implies potential upward revision of sector NAVs. The likely winners are those developers with a strong investment portfolio that were able to maintain their occupancy levels and rental returns.Emaar stands out, in our view, with rental income increasing by 68% in 1H09 compared to 2H08 (3Q09 revenue breakdown still not available).