Dubai house prices to rise again in second half of 2014: Knight Frank

After rising by the most in the world for a year, prices of Dubai’s prime residential property grew by just 1 per cent quarter-on-quarter in the first three months of 2014.

End of the bull-run? Not by far, says global property consultancy Knight Frank, which says in its latest report that Dubai’s “residential prices will resume on an upward path in the second half of this year.”

In its latest ‘Dubai Prime Residential Report,’ the firm says cites strong economic conditions, a well performing labour market and prospects of loosening credit standards for buyers to suggest that demand for prime residential property will see an uptick in the short-term.

“That, combined with the fact that very little is due to be completed in the prime segment over the next 18 months, points to luxury residential prices resuming their upward path in the second half of this year,” says Victoria Garrett, Associate Partner of Residential at Knight Frank, in the report.

For investors who may be thinking that Dubai property prices have reached their peak, or are near them, Knight Frank shares some statistics from their global research. According to the firm, “despite the significant price growth seen over the past couple of years, it is difficult to argue that Dubai’s prime residential property is expensive by international standards.”

Its research illustrates that $1 million (Dh3.675 million) buys approximately 146m2 of luxury living space in Dubai – around six times more than in London, seven times more than in Hong Kong and 10 times more than in Monaco. Notably, other global cities such as Moscow, Mumbai and Istanbul are also more expensive than Dubai. (Read: Property prices: Dubai more affordable than Monaco, Hong Kong, Mumbai)

The recent sluggishness in Dubai’s property prices is actually a result of the steps that the authorities have been taking to tame the overheating segment, say experts. “The slowdown can primarily be attributed to a combination of higher transfer fees and the introduction of mortgage caps – both of which came into effect in the final part of last year,” says Garrett.

She adds that “the latter [mortgage cap] appears to have hit the emirate’s residential property market especially hard, not surprising given that broadly around 25-35 per cent of luxury home buyers rely on mortgage finance for purchase.”

The firm maintains that the “double whammy of higher transfer fees and the new mortgage caps are having their desired effect, although the latter has been especially effective in dampening buyer activity.”

According to its data, Q1 2014 transaction volumes across the emirate’s prime basket of properties were 10 per cent lower compared to the preceding three months and were nearly 28 per cent below a year earlier. That, it says, isn’t surprising given that more than a quarter (25-35 per cent) of buyers rely on mortgage finance for purchase.

“The latest available data from the UAE Central Bank shows that, after bouncing in and out of negative territory for two years, loans, advances, overdrafts and real estate mortgage lending grew in annual terms throughout 2013. Moreover, this trend of rising lending to the property sector is likely to continue,” it states.

According to it, data from the Central Bank’s Q1 2014 Credit Sentiment Survey showed that financial institutions expected to loosen their credit standards for both residential owner-occupiers and investors in the subsequent three months.

This will mean an uptick in property transactions and prices in the second half of the year, before seeing a single-digit increase in 2015.

In addition, Dubai’s real estate buyers remain as diverse as ever. According to the Dubai Land Department, 133 nationalities bought property in the emirate in the first three months of this year, with Emiratis (Dh7bn), Indians (Dh5.9bn), Britons (Dh3.1bn) and Pakistanis (Dh2.4bn) the largest investors.

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