Prices of prime residential properties in Dubai dropped 3.8 per cent year-on-year in the first six months of year, as "a mismatch of supply and demand has compressed prices", a report from real estate consultancy Savills said.
The consultancy's World Cities Prime Residential Index, which tracks 25 major cities worldwide, ranks Dubai as the third-most affordable city for prime real estate, with average prices of $600 per square foot. Only Kuala Lumpur ($260 per sq ft) and Cape Town ($330 per sq ft) offer more affordable prime properties.
Over a five-year period, the price of prime residential units in Dubai has dropped 19.7 per cent, making it the worst performer in the index. Only London (down 18.1 per cent) and Moscow (down 15.1 per cent) reported similar price declines over the five-year period.
Swapnil Pillai, a Middle East research associate at Savills, said falling prices represent a "a good opportunity for domestic and foreign investors to look at Dubai".
"It is far more affordable to purchase prime residential property now due to lower transactional costs and overall lower prices when compared to other major cities. Investors are paying less for top class specifications," he said.
"Secondly, strong rental yields mean that long-term investors could generate robust annual returns when letting out property in the city.”
Savills said Dubai offered a return on investment of 4.6 per cent, which was the fourth-best of the cities it monitors, behind Los Angeles, Moscow and Cape Town.
“The market for prime properties is likely to remain relatively stable in Dubai over the short-to-medium term," said Mr Pillai.
"Capital values for prime properties are not likely to mirror the general decline witnessed across other segments. However, a general slowdown in the market may have a visible impact on pricing across prime properties as well.”
In its annual Wealth report published in March, property consultancy Knight Frank ranked Dubai 87th out of 100 cities in terms of price performance in its Prime International Residential Index for 2018 as prices dropped 3.4 per cent year-on-year.