Confidence in Dubai’s residential property market appears to be returning with the Colliers International Q1 2010 House Price Index recording a 4% increase in house prices since Q4 2009. It is the third consecutive quarter in which the index has registered an overall increase, reinforcing a trend of market stabilisation.
The index increased by 4 basis points from 115 points in Q4 2010 to 119 points in Q1 2010, while the blended average house price for Q1 2010 is approximately AED 1,061 per ft2 (AED 11,420/m2) compared to AED 1,022/ft² (AED 11,000/m2) in Q4 2009.
The index has also shown a year-on-year increase of 2%, the first annual increase in value since the downturn hit the property sector in Dubai. According to Colliers International, average house prices are now on par with 2007 levels, suggesting the market has reached underlying value.
While the results offer positive news for Dubai’s beleaguered property market, the global real estate consultancy remains cautious about the year ahead.
“Despite the stability that the market appears to have achieved, a number of concerns remain. There will be significant oversupply in the market by the end of the year so it is anticipated the index will experience fluctuations in value going forward. What will be important to watch is how much of that supply matches the end-user demand for community-oriented developments,” said Ian Albert, Regional Director at Colliers International.
Colliers International estimates that 41,000 residential units (both freehold and non-freehold) will enter the market by the end of 2010, mostly positioned in the low to mid income segments. With demand not expected to match the growth in supply, Colliers International says the additional stock is likely to create downward pressure on property prices. However, it remains unclear whether the future supply will have a negative impact on established projects, which are typically more resilient to market conditions.
Projects that offer a sense of community lifestyle are anticipated to fare better with the Q1 index showing the liveability aspect of a development to be a clear demand driver. This trend follows the change in ownership structure from speculative investors to end-users.
Concerns over banks’ end-year results and the availability of liquidity reported at the beginning of year have somewhat abated with several financial institutions reducing their interest rates and increasing their loan-to-value ratio. The LTV of leading mortgage providers has increased to 75%-90% with interest rates varying between 6.5% and 8.5%.
“Access to finance will be another important factor to consider over the coming months, especially as new supply comes onto the market. While banks are lending again, they are being very selective about the types of projects they lend against and the customers they lend to. Low-risk investments are very much the focus. It is unlikely all of the forthcoming supply will meet the new and stricter lending criteria,” added Albert.
The index, compiled using actual mortgage transaction data from a consortium of financial institutions, continued to show marginal fluctuations in quarter-on-quarter price values for apartments, villas and townhouses.
“Minor price variations are to be expected as the market looks to reset itself. Just how considerable those price fluctuations become will depend largely on how the entire real estate value chain adjusts to the changing market conditions,” said Albert.
Key report findings:
• Increase in the overall index of 4% between Q4 2009 and Q1 2010
• YOY increase of 2% between Q1 2009 and Q1 2010
• Blended average rate for residential property in Q1 2010 is up from AED 1,022ft² (AED 11,000/m2) to AED 1,061 per ft2 (AED 11,420/m2)
• Apartment prices increased by 6% in Q1 2010 compared to Q4 2009
• Villa prices increased by 2% in Q1 2010 compared to Q4 2009
• Townhouse prices decreased by 4% in Q1 2010 compared to Q4 2009
• Apartments constituted 33% of the total transactions
• Villas constituted 46% of the total transactions
• Townhouses constituted 21% of the total transactions
To download a copy of the Q4 2009 Dubai House Price Index visit www.colliers-me.com
