Dubai property prices will reach 2008 levels, raising worries of another bubble

Jones Lang LaSalle predicts that house price growth in Dubai would average between 10 and 15 per cent this year, while rents in the emirate will climb by another 10 to 20 per cent.

A view of villas in the Arabian Ranches district of Dubai. Pawan Singh / The National

Lucy Barnard

House prices in Dubai could hit their 2008 peak by the end of the year, heightening fears of another property bubble.

Average real estate prices in the city have enjoyed their highest growth spurt, reaching levels of 22 per cent last year and may grow between 10 and 15 per cent this year, putting them back in line with those achieved before the global financial crisis, a report from Jones Lang Lasalle said yesterday.

The agent said that average prices were currently 15 per cent below their 2008 level, which was achieved shortly before prices crashed by as much as 60 per cent in the emirate.

Jones Lang Lasalle predicted that 2014 would not be the year that a second UAE bubble bursts, but it warned that a correction could be looming in the longer term if both house prices and rents continue to grow at unsustainable levels.

It predicted that rents in Dubai are set to increase by another 10 to 20 per cent over the year.

Estimates for house price growth in Dubai this year vary significantly. In January the Dubai Land Department head Sultan Butti bin Mejren said that property prices could rise by as much as 40 per cent.

“We have been asking our clients what they think will cause the next correction and when it will come,” said Craig Plumb, the head of residential at Jones Lang Lasalle’s Dubai office.

“We don’t think it will come in 2014 but we do think that it could come longer term, and if so it will be caused by one of four key factors: either an external factor which is financial or geopolitical.

“Or it could be that continued price growth finally makes the UAE a less attractive place for expatriates to live. Or the final factor could be that resource constraints for either people or materials lead to problems with construction keeping up with demand. In our view the last of these is the most likely.”

Jones Lang Lasalle said that house prices in Abu Dhabi rose by as much as 25 per cent over 2013, while price increases this year would be lower. At the same time rents in prime areas of the capital rose by an average of 17 per cent.

The company said it was unable to predict what would happen to rents in the capital over the coming year because of the uncertainty over whether a rent index would be introduced.

“Abu Dhabi is interesting because in the short term there is a lot of demand for housing as a lot of jobs are created to oversee the construction of the new airport, the new metro and the museums,” said David Dudley, head of Jones Lang Lasalle’s Abu Dhabi office. “However, these are jobs which are created for the short term and we have trouble seeing what will replace them over the longer term.”