Investors prepared to pay the premium

Master developers had rising sales volumes last month as buyers looked for quality offerings and locations ahead of price, according to the Landmark Advisory, a property consultant based in Dubai. Emaar Properties accounted for two thirds of all sales in Dubai, Landmark said, while Sorouh Real Estate's developments in Abu Dhabi had been almost as popular, partly because they were close to the city centre.

"With a flight to quality clearly under way, end-user preferences are differentiating prices in favour of quality developers like Emaar and preferred locations like Dubai Marina," said Jesse Downs, the director of research and advisory services at Landmark. Despite renewed investor interest, residential property prices in Dubai fell up to 32 per cent in the first quarter this year compared with the final quarter last year.

In Abu Dhabi, prices declined by as much as 30 per cent, the consultancy said. In both emirates, buyers and renters now seem to be willing to pay the premium. "Residents in Dubai see Emaar as a source of quality," Ms Downs said. Dubai Marina is the most popular area for apartment rentals, accounting for 30 per cent of all new annual leasing contracts. Emirates Living was the second most popular, at 16 per cent.

For villas, Emirates Living dominated with 40 per cent of new villa rentals, followed by Mirdiff and Jumeirah/Umm Sequim. In Dubai, rental rates have dropped between 9 per cent and 41 per cent, depending on the area, since the fourth quarter last year. Landmark expects about 24,000 new homes to be built this year, which, adding to vacancies caused by repatriation, will lead to a surplus of between 30,000 and 52,000 homes.

In Abu Dhabi, sale prices fell by up to 20 per cent for apartments in the first quarter and 30 per cent for villas compared with the previous quarter. Sorouh's secondary market prices have kept a 20 per cent to 25 per cent average premium over the launch prices, while Aldar's units averaged close to their initial launch prices, and in some cases have fallen 10 per cent lower. "Aldar's entire freehold/leasehold portfolio is in off-island developments on the city outskirts. In contrast, Sorouh will be less affected, as most of its freehold/leasehold properties are centred on Al Reem Island, which is close to central Abu Dhabi," Ms Downs said.

Apartment rents in Abu Dhabi remained stable but average villa rents declined by up to 20 per cent. "The faltering demand for villas in Abu Dhabi is likely due to intense competition from Al Ain and Dubai, where housing costs are plunging," Landmark's report said. "For many expatriates, low rents and lifestyle preferences justify to work in Abu Dhabi but live in Dubai." But the consultancy expected that, with a conservative forecast of 2 per cent population growth this year and next, Abu Dhabi's property market will still be undersupplied by 27,900 units.

If the population were to grow by 6 per cent, something the consultancy considers to be unlikely, the housing shortage in the capital would reach 45,000 units, the firm said. [e-mail]