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Dubai's house prices jump 4% in Q1
May 10, 2010
Colliers International says average prices are now on a par with 2007 levels.
Property prices in Dubai's residential property market rose four per cent between fourth quarter 2009 and the first quarter 2010, but demand-supply mismatch is likely to put downward pressure on prices, according to Colliers International.
"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," the global real estate consultancy said in the first quarter House Price Index (HPI) report released yesterday.
Prices moved up two per cent year-on-year in the first quarter of 2010 against the first quarter 2009. Blended average house price for first quarter stood at Dh1,061 per square foot compared to Dh1,022 per square foot in the fourth quarter 2009.
The fourth quarter 2009 HPI had revealed year-on-year decline of 42 per cent between fourth quarter 2008 and fourth quarter 2009, while average prices were at Dh1,022 per square foot.
"The index has shown a year-on-year increase of two per cent, the first annual increase in value since the downturn hit the property sector in Dubai. Average house prices are now on par with 2007 levels, suggesting the market has reached underlying value," Colliers said.
The report estimates 41,000 residential units –both freehold and non-freehold – will enter the market by the end of 2010 and most of the supply will be positioned in the low to mid-income segment.
"Demand is not expected to match the growth in supply, creating downward pressure on property prices. It remains unclear, however, if the future supply will have a negative impact on established projects, as they offer a greater resilience to market conditions," said the report.
In a press statement, Ian Albert, Regional Director at Colliers International, said: "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."
Projects that offer a sense of community lifestyle are anticipated to fare better with the first quarter 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, Colliers said.
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 (LTV).
The LTV of leading mortgage providers has increased to 75-90 per cent with interest rates varying between 6.5 per cent and 8.5 per cent, the report said.
"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," Albert said.
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. Apartment prices increased by six per cent in the first quarter compared to the fourth quarter in 2009. Villa prices increased by two per cent while townhouse prices decreased by four per cent in the first quarter compared to the fourth quarter of 2009.
The blended average rate for apartments in the first quarter stood at Dh1,177 per square foot as against Dh1,113 in fourth quarter 2009, while the average for villas was at Dh941 per square foot compared to Dh919. Townhouses were the only property type that registered a decrease in its values, despite the increasing number of transactions. The average blended rate per square feet for townhouses in the first quarter was at Dh859. In the fourth quarter in 2009, townhouse prices had increased by 10 per cent compared to third quarter in 2009.
In response to the Colliers report, Matthew Green, Head of Research & Consultancy UAE, CB Richard Ellis Middle East, said: "Greater stability is slowly emerging within the residential sector as declining unit values begin to level off. However, the handover of new supply during 2010 will continue to have an impact on price and leasing rates, most specifically within the newer freehold districts where excess supply is already a real concern."
The more established and mature residential communities projects are now typically out performing general market trends, with investor focus on these safer asset types likely to drive any potential growth in transaction volumes during the second half of the year, he added.
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