The tallest tower in the world helped house prices rise in Dubai for the first time in a year, according to a new report from the property services agency Colliers International. The Downtown Burj Dubai development delivered the highest prices per square foot in Dubai over the third quarter, followed by developments such as Palm Jumeirah, The Lakes and Jumeirah Beach Residences, the report said. However, the gains overshadowed continuing declines in many locations around the emirate in the third quarter.
While overall prices gained 7 per cent in the quarter compared to the previous three months, they were still 47 per cent lower than in the same period a year earlier, at the peak of the market. The site of the world's tallest tower was responsible for most of the gains, according to the report, which is based on prices given by banks offering mortgages on 14 of the biggest residential developments in Dubai where foreigners are allowed to buy.
"There are three main reasons for it - the availability of finance, a perception of job security outside the real estate sector and more transparency," said Ian Albert, the regional director of Colliers. "People can see what is happening on the construction sites and make their own judgement." The report is the latest indication that the Dubai property market could be finding its bottom, and follows the publication of data from HC Securities that suggest the projected oversupply of new homes in the emirate may have been exaggerated.
The banking and research firm said 60,000 units would be delivered through to 2011 compared with estimates as high as 140,000 units. The Colliers Dubai House Price Index showed that the volume of third-quarter transactions rose 64 per cent over the previous quarter. The average rate for residential property rose to Dh1,016 (US$276.61) per square foot from Dh949 per sq ft in the second quarter. "The Downtown Burj Dubai is seeing a spike because it is nearing completion," Mr Albert said. "As properties get nearer to completion you always get prices driven up slightly. And Downtown Burj Dubai is one of those tier one locations."
Arabian Ranches, a vast villa-based development in Dubai's desert hinterland, showed the most transactions over the period, followed by the Springs, Dubai Marina, Jumeirah Village and Downtown Burj Dubai projects. The return of mortgage companies to the market is helping transaction activity recover, while some banks also started to grant loans against properties that reached 70 per cent completion during the quarter. Banks withdrew from under-construction lending following the collapse of property prices a year ago.
"More banks have come back into the marketplace, although the due diligence process has increased from the banks' point of view," said Mr Albert. "Interest rates are coming down a little bit as well." Despite the price gains over the quarter, Mr Albert expects prices to remain under pressure as more homes reach completion. "We already have an oversupply now and over 2010 and 2011 there are 34,000 additional residential units coming into the market in Dubai," he said.
"We will see a dampening effect on prices, but the price depreciation will not be uniform across the market. We will see a clear differentiation and separation between tier one developments that have infrastructure in place, good road access, landscape and tier two developments." @Email:ngillet@thenational.ae