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29 March 2024

Dubai among top residential markets

Dubai recorded a growth rate of 11 per cent in 2008. (ASHRAF AL AMRA)

Published
By Parag Deulgaonkar

Dubai has been ranked seventh out of 55 prime residential markets in the world in terms of annual price growth, said a report.

The emirate holds the 28th position on the global status cities list.

"The most resilient prime markets in 2008 tended to be found in the emerging economies – notably Moscow (13 per cent), Jakarta (18 per cent) and Bangkok (23 per cent). Dubai managed to record growth of 11 per cent, although by fourth quarter prices were slipping substantially," said Knight Frank and Citi Private Bank in its "Wealth Report 2009".

For most of the world's prime residential markets, 2008 was a year to forget.

Prices fell in almost half of all global hotspots and sales volumes all but dried up in many markets.

From Europe, to the Middle East, to the Americas and Asia, few places had much to celebrate. The impact of the credit crunch was felt first in the prime new build and investment-led markets.

By the summer of 2008, off-plan sales in Europe, North Africa, the Caribbean and Middle Eastern resorts struggled to maintain traction and plans were either scaled back or put on hold.

It was perhaps obvious in retrospect that investment and some over-inflated second-home markets would be hit hardest. In areas where local demand for prime property is limited or even non-existent – especially those with an abundance of stock – investors have created an artificial market, the report said.

"Without them there is nothing to support prices. As returns from equity and commodity markets plunged, even high net-worth individuals (HNWIs) and ultra high net-worth individuals cut their discretionary expenditure. But the worsening global and local market conditions meant that through the year even the prospects for the world's most expensive first-home markets – including London, New York, Hong Kong, Sydney and Singapore – weakened sharply," said Liam Bailey, head of residential research at Knight Frank.

Of the 55 locations covered by the index, 23 saw prices fall over the course of 2008, six saw no change and 26 saw growth. Comparing fourth quarter against third quarter of 2008, 35 locations saw prices fall as opposed to only 14 showing growth.

The biggest losers were the prime districts of the big cities: Hong Kong (-25 per cent) and London (-17 per cent) led the decline, but several other cities saw double-digit price falls, including Singapore (-15 per cent) and Sydney (-12 per cent).

Price rises in prime Asian locations have been driven by a lag between wealth creation and slow growth in new high-specification housing. But evidence is mounting that in these locations, where annual double-digit price growth has become the expectation, performance has weakened noticeably in recent months and there is talk of steep price falls this year as wealth creation falters. Different parts of the world are at different stages of the global downturn, but nowhere will be immune from a significant fall in property values.

Tax-efficient locations, which proved to be market leaders during the boom years, have begun to come under pressure.

Zero growth was recorded during the year for both the Cayman Islands and Bermuda, whereas in Monaco a respectable rate of growth in the first half of 2008 was reversed by a sharp downturn in the third quarter – before values stabilised in the final quarter – leaving prices 2.1 per cent up on the year.

Following rapid price adjustments, in addition to currency fluctuations, the league table for the world's most expensive residential markets has changed substantially since the 2008 Wealth Report.

Despite recent price falls, Monaco stands out at the head of the field – with an average value of $6,550 (Dh24,038) per square foot for the best properties.

London, where values have been hit hard by the slide in the value of sterling, slips down the ranking to number two. Manhattan is in third place, while Asian cities (Hong Kong, Tokyo and Singapore) compete with European centres (Moscow, Rome and Paris) for the remaining positions in the table, with Sydney bringing up the rear. The impressive showing from Moscow (fourth) is influenced by the relatively small size of the city's prime market area – and the rapid growth of HNWI purchasers over recent years – although recent evidence is that price growth has slowed and turned negative in the final quarter.

Last year saw prime market conditions range from "challenging", to "difficult", to "awful".

Looking ahead to the rest of 2009 and beyond, it is easy to become despondent about the prospects for prices and sales volumes throughout the luxury market. Rather than being immune from the wider market downturn, as many felt would be the case 12 months ago, the luxury-housing sector is potentially more vulnerable to economic shocks than the mainstream market, the report said.

Although the most desirable and established prime locations will retain their liquidity and long-term values better than the artificially inflated newcomers to the prime arena.

The element that gave the sector its impetus for growth over the last decade was the expansion of global trade and economic linkages.

This factor contributed to the rapid growth of a footloose and wealthy global elite, giving the global luxury market a substantial raison d'être. The demand for property to facilitate this lifestyle grew substantially.

As late as the summer of 2008, Knight Frank sold more European properties priced at or above $13.64 million in three months than in the whole of 2006.

The credit crunch slowed this process.

"The lesson to draw from the last two years is that no market, no matter how luxurious, can escape a bubble-and-bust scenario. However, when the market believes prices have returned to offer good value, activity will rise and the perennial factors that make a true prime market desirable will endure," Bailey said.

Meanwhile, the established European, American and Asian urban centres dominate the 40 cities in the World Cities survey.

The traditional powerhouses lead the rankings, with London leading the table, followed by New York, Paris and Tokyo. The four key ranking criteria were economic activity, political power, knowledge and influence and quality of life.

"Despite significant investment, Dubai struggles to score well on this measure, however we expect the city to climb further in the future," the report said.

The crux of the matter for many cities in emerging economies is that while they have benefited from government investment in infrastructure and facilities, issues surrounding personal freedoms and safety, as well as broader political tension remains stumbling blocks.