Real estate sector shows early signs of stabilisation

House price increases of seven per cent and one per cent in the third quarter and fourth quarter of 2009 respectively in Dubai is indicative of early signs of price stabilisation in the emirate, revealed a latest report.

According to Colliers International House Price Index for the fourth quarter of 2009, "the index results over the third and fourth quarters of last year at seven per cent and one per cent respectively are early indications of the market prices reaching resistance levels due to severe fluctuations".

The report revealed that the overall house price index rose close to one per cent between the third quarter of 2009 and the fourth quarter of 2009. The index increased by one basis point, from 114 points in the third quarter of 2009 to 115 points in the fourth quarter of 2009, thereby representing an increase close to one per cent.

The House Price Index (HPI) further indicated a levelling of property values in the fourth quarter last year showing an annual variance of just 1.7 basis points, further underlining a stabilisation trend.

Annual variance

"Although there may be slight fluctuations in the quarter-on-quarter findings, overall the annual variance of the house price index by 1.7 basis points indicates that Dubai is showing early signs of stabilisation," Ian Albert Regional Director, Consultancy Services, Colliers International told Emirates Business.

According to the index, house prices were still down compared to last year as the index showed a year-on-year (yoy) decline of 42 per cent between the fourth quarter of 2008 and the fourth quarter of 2009.

The HPI has been derived by using the weighted average method to construct the Overall Index. Apartments, villas and townhouses have been weighted at 55 per cent, 34 per cent and 11 per cent respectively in order to provide market trends. The sample size for this HPI is 15 property developments.

The member banks/financial institutions associated with Colliers International House Price Index are HSBC Bank Middle East Limited, Barclays Bank, Amlak Finance, Dubai Islamic Bank, Emirates NBD and Abu Dhabi Commercial Bank.

Apartment prices decreased by four per cent in the fourth quarter of 2009 compared to third quarter of 2009. Villas and townhouses however increased by seven per cent and ten per cent respective in the fourth quarter of last year compared to the third quarter of last year.

The quarterly overall apartment index decreased by four per cent in the final quarter of 2009 compared to the third quarter of 2009. The blended average rate per square foot for apartments in Dubai in the final quarter of 2009 was Dh1,113sq ft (Dh11,980 per square metre).

The quarterly villa index increased in the fourth quarter of 2009 to reach 127 index points, marking a seven per cent increase compared to the third quarter of 2009. The average blended rate per square foot for villas in Dubai in the fourth quarter of 2009 was Dh919sq ft (Dh9,892 per sq m). Villas constituted 35 per cent of the total mortgaged properties used to collate this index. The annual overall villa index, however, decreased by 43 per cent in the final quarter of 2009, compared to final quarter of 2008.

Townhouse prices also increased by 10 per cent in the fourth quarter of 2009 compared to the third quarter of 2009. The average blended rate per square foot for townhouses in Dubai in the final quarter of 2009 was Dh890sq ft (Dh9,580 per sq m). Townhouses constituted 17 per cent of the total mortgaged properties used to collate this index.

Within a stable market different property types fluctuate marginally month to month and quarter to quarter. As can be seen from this quarter's results over those of the last quarter's there continues to be a variance in the performance of the villa, townhouse and apartment sectors' as the market continues to cope with a variety of influencing factors.

Finance

The availability of finance has stimulated demand for properties contained within the confines of these parameters and caused marginal fluctuations in price.

The on-going variance in supply within the three main property segments continues to impact the monthly and quarterly property results.

The index, however, revealed the monthly index showed prices increased by two per cent in October, 10 per cent in November and then decreased by four per cent in December. "Supported by the previous six months of data it is felt that current prices may be reaching underlying market values. While the market appears to have reached an overall level of stability over the preceding two quarters there are a number of factors that need to be considered such as the ongoing market variations," said Albert.

The number of transactions declined by 15 per cent in the fourth quarter of 2009 compared to the third quarter of 2009. Apartments constituted 48 per cent of the total transactions. Villas constituted 35 per cent of the total transactions. Townhouses constituted 17 per cent of the total transactions. The Victory Heights development has been added to the index, increasing the number of developments covered in the index to 15.

Price variation

The blended average rate for residential property in Q4 2009 is up from Dh1,016 per sq ft (Dh10,936 per sq m) to Dh1,022 per sq ft (Dh11,000 per sq m).

Also there is price variation between completed and non-completed properties in Dubai, as in other markets. There is a price differential between properties that are complete and occupiable as opposed to properties that are still under construction or in their planning phase. The HPI needs to track the trends in these markets and record them. Also, in Dubai, is the large Downtown Burj Khalifa development, which for a variety of reasons was attracting better prices than other projects. The HPI accordingly analyses the trends for prices achieved for completed properties as opposed to properties still under construction. It looks at the trends, inclusive of the Downtown results.

Average price

The average price for completed properties increased from Dh1,051 per sq ft) (Dh11,313 per sq m) to Dh1,148 per sq ft (Dh12,357 per sq m) in the fourth quarter of 2009, which represents an increase of nine per cent. Average prices for properties still under construction increased by eight per cent to Dh893 per sq ft (Dh9,612 per sq m) in the fourth quarter of 2009 compared to Dh826 per sq ft (Dh8,891 per sq m) in the previous quarter.

The increase in the selling price of properties still under construction can be attributed to increased selling prices being achieved in Jumeirah Village, Victory Heights and Dubai Marina. Financial institutions have continued to grant loans against properties that are 70 per cent complete or within six months from completion. This returned some buoyancy to this market segment, said the report.

When excluding Downtown from the price comparison, the average rate per square foot of completed properties increased by 11.7 per cent from Dh974 per sq ft (Dh10,484 per sq m) in the third quarter of 2009 to Dh1,088 per sq ft (Dh11,711 per sq m).

The upward trend was also recorded for incomplete properties, where average rate per sq ft increased Dh632 sq ft from (Dh6,802 per sq m) to Dh893 per sq ft (Dh9,612 per sq m).

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