Rising investor confidence driving Dubai property recovery: Citi

Recovery of Dubai’s real estate sector is in line with the wider economic upturn and strong economic fundamentals of the emirate, Citibank said on Wednesday.

In its monthly report, the bank emphasized that Dubai’s economic rebound and improved investor sentiment had breathed life into the real estate market in recent months with the volume and value of real estate transactions carried out in the emirate mushrooming  since the beginning of the year.

“For investors, we think the economic recovery and pick-up in the real estate market is unambiguously good news in the near-term. They signal a strengthening in cash flows to the Dubai sovereign and its Government Related Entities (GREs), most of which have a significant stake in the local economy and, specifically, the property sector,” said Farouk Soussa, Middle East economist at Citi in Dubai.
 
Quoting data from Cluttons, the bank said prices of mid-range property (both apartments and villas) have risen by some 20 per cent in the past 12 months. Although the prices are still below the 30-40 per cent annual gain reported during the pre-2009 boom , CB Richard Ellis says the increase represents one of the sharpest gains in the property sector anywhere globally this year.

In August, Dubai Land Department said property transactions had jumped 21 per cent to Dh63 billion in the first half of 2012 compared to the same period last year, while transactions surged 82 per cent in value terms quarter-on-quarter, reflecting growing confidence among investors. Emirates 24/7 reported earlier that property sales for the first quarter had reached Dh22.34 billion.

Rapid population growth in the UAE had led to a relative tightening in the housing market before 2009 with demand outpacing supply. Subsequently in 2009/2010, a retrenchment in demand growth and rising completions on the supply side saw vacancy rates climb rapidly, leading to. tumble in property prices.

Citi pointed out that the situation was changing, stating  the situation has begun to reverse since the past two years: a slow down in completions and a rise in population growth is reducing vacancy rates, a trend which the banks expect will continue.

Ironically, the bank said earlier in October that a mini-revival in the Dubai property market was driven by “refugee capital”,  from buyers facing geo-political risk and currency depreciation in their domestic markets, e.g. India, Iran, Pakistan and Egypt.


Jones Lang LaSalle has said the Dubai residential real estate market appears to have bottomed out as prices are now at rates similar to early 2008 levels, while the UK-based Royal Institution of Chartered Surveyors has said funds for investment in the UAE property market are beginning to rise with capital values expectations turning positive for the first time since 2008.

Soussa believes the driver of the recovery has been the “prime” market, in both the residential and retail spaces, a view expressed by several global and local property consultancies.

“Demand is strongest in mature developments, in villas, and for newer, shinier retail space. Demand is considerably weaker for property in less desirable areas, further out and with less developed infrastructure, or for the older, more tired retail space.”

Citi estimates the current stock of housing exceeds demand by some 50,000 units and with the slew of new projects being announced the emirate the supply overhang will remain a feature of the property market for the foreseeable future.

Soussa cautions against early signs of exuberance, such as the re-emergence of off plan sales and the risks of excessive supply given some of the recently announced projects.

“Such exuberance could undermine not only the sustainability of the real estate recovery but lead to dislocations in the wider economy as well,” he points out.

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