* Dubai property prices to continue slump
* Contractors seek new opportunities elsewhere
* European investors favour more familiar markets
By Jason Benham and Sinead Cruise
DUBAI/LONDON May 14 (Reuters) - European investors have mothballed plans to invest in Dubai's bombed-out property in favour of more familiar and mature markets, prolonging the emirate's maiden bust until at least 2011.
Prices in the emirate's once-booming real estate sector will continue to slump over the next year, with demand for property waning as expat professionals lose their jobs, while more Dubai contractors will bid for projects elsewhere.
Once a magnet for capital from European property investors, the emirate's appeal -- famed for its iconic palm tree-shaped islands -- is fading fast as they scramble to seize better real estate deals closer to home and elsewhere in the Gulf.
Analysts are already predicting the more stable Doha and Saudi Arabia property markets to recover faster than Dubai, which is experiencing its first growing pangs.
"The consensus opinion is that the Dubai market has further to fall and this very sentiment is itself putting off investors who do not wish to catch a falling knife," said Craig Plumb, head of research at Jones Lang LaSalle in the United Arab Emirates.
A UBS report last month said Dubai house prices could fall up to 70 percent from a fourth-quarter peak. A Reuters poll in March showed prices were likely to fall more than 40 percent in 2009 and 2010 before recovering in 2011.
"Dubai is not one for us. I much prefer long-term established locations with underlying intrinsic attractions or clear, sustainable competitive advantages," said Bill Hughes, managing director, Legal & General Property.
By contrast, the battered UK housing market is showing early signs of revival, with an uptick in investment demand seen in Britain long before Dubai.
Property prices in Dubai, dubbed as the world's biggest construction site, soared sharply 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.
The bubble burst spectacularly late in third-quarter 2008, leaving the region laden with half-built projects.
"The extreme boom-bust characteristics of the market are not compatible with the needs of most institutional investors, which are Aberdeen's core client base," said Andrew Smith, chief investment officer at Aberdeen Property Investors.
The financial market turmoil has caused significant injury to demand in Dubai's property market as thousands of jobless expat professionals are forced to leave the emirate.
UBS said Dubai's population was likely to fall 10 percent in the coming two years as a result of foreign worker job cuts, with residential vacancy rates reaching up to 30 percent in 2010 due to an expected oversupply.
CONTRACTORS LOOK ELSEWHERE
"International capital and indeed that from the Gulf region is increasingly looking for distressed assets in more mature markets, with central London being seen as the pick of the bunch," Plumb said.
Several Dubai-based contractors are also seeking opportunities further afield as work dries up and competition for new projects intensifies.
Dubai contractor Arabtec, the largest listed construction firm in the UAE, was this week awarded a 1.6 billion dirham ($435.6 million) contract in Abu Dhabi. It also recently started work on its first project in Saudi Arabia and is scouring North Africa for work.
More than half of the construction projects in the UAE, worth $582 billion, have been put on hold, Dubai-based market research firm Proleads said in February.
While abandoned buildings and empty luxury homes provide a stark reminder of Dubai's dramatic property bust, the small number of investors with cash to spend on real estate will be keeping their powder dry.
"In the short term there is a lot of confusion among overseas investors," said Stuart Law, chief executive of UK-based Assetz, a specialist real estate investment firm.
"I wouldn't buy there myself for holiday home purposes as there's nothing going on. South of France is for me," he said. (Editing by Andrew Macdonald) ($1=3.673 dirhams)