The sudden drop in the prices of prime Dubai properties is drawing attention from real estate investors seeking attractive entry points.

"It is not so much that Dubai is gearing to attract more real estate funds into the market, but with property valuations becoming more attractive... investors are deploying more capital into the real estate sector," says Kerrie Alder, Head of Real Estate, Emirates Investment Services (EIS) Asset Management.

"The re-introduction of available financing will also further aid interested funds in due course," said Alder.

EIS has so far closed more than 20 deals. "We have probably covered most of the completed property market in some way or form via our committed investment team," said Alder.

Tamer Bazzari, Deputy Chief Executive of Rasmala Investments, said Dubai was seeing a lot of interest from real estate fund investors and managers.

"The investors and fund managers are doing a lot of analysis to try to determine the right entry price in the right asset class at the right time. We expect that many attractive opportunities will be found by such funds over the next two years."

"As the real estate market matures further, more real estate funds will focus on assets that offer lucrative prices and show signs of distressed opportunities or yield opportunities," he said.

Sohail Zubairi, Chief Executive Officer, Dar Al Sharia, a subsidiary of Dubai Islamic Bank, agrees: "Some new investments may have entered Dubai in the recent past, mainly to exploit the distressed sales of property units at prime waterfront locations where the plunge in real estate prices has been felt the hardest," said Zubairi.

Experts further said that many investors were high net-worth individuals seeking good bargains from distressed opportunities.

"We also expect to see regional and international institutional such as pension funds and insurance companies investors seeking income-producing properties at attractive yields," said Bazzari.

According to Rasmala, rental funds are expected to give a return of around eight to 12 per cent annually, while distressed real estate funds are expected to typically give a 25 per cent annual return owing to its higher risk profile.

"Predicting returns is of course difficult and depends on the overall investment strategy of the fund – our own fund has returned approximately 15 per cent per annum in US dollar terms with a net yield of approximately 7.5 per cent. This is on an essentially unlevered, fully occupied portfolio," said EIS' Alder.

The recent drop in Dubai real estate prices was underscored by the decision of developer Mada'in Properties to reduce prices on existing contracts by up to 30 perecent.

Existing customers of Mada’in Properties will receive revised contracts with the purchase price of their properties discounted up to 30 percent, the developer said on Wednesday.

“We have studied the market conditions and have formulated a strategy that deals with the past, the present and the future. Bearing this in mind, we have made the decision to assist our customers in their investments, not only in good times, but also in the current market conditions,” Abdul Aziz Al Awar, CEO of Mada’in Properties said.

“The construction costs have been reduced significantly allowing us to pass on the savings to our current customers,” he added.

Dubai real estate has dropped 25 percent from its September peak as speculators left the market as a result of the global downturn and banks reduced their lending, according to Morgan Stanley.

In February, Dubai-based developer, Deyaar also announced it would reduce the price of properties bought during the real estate boom.

Some investors are looking beyond real estate, using crisis-driven pricing as an opportunity to make equity acquisitions as well.  Private equity firm Gulf Capital expects to expand its acquisition program this year, as the economic downturn forces sellers to lower prices.

The Abu Dhabi - based company said many family businesses, corporations and individual investors in need of liquidity are trying to sell businesses that are in good shape, but may not be core to their fundamental portfolio companies.

The firm was currently positive on businesses correlated to government budget spending, which included infrastructure, education and healthcare, said Magellan Makhlouf, managing director of the firm’s post acquisition department.