Dubai residential property recovery gathers steam

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The Dubai residential property market recovery gathers pace, with Sharjah also benefiting, reveals Cluttons.

Cluttons, the global real estate company with a dedicated Middle Eastern presence, today issues its latest market analysis in The Property Report (Summer 2013).  This annual publication is timed to fall between the two existing bi-annual reports and takes stock of the year thus far, looking at the residential and commercial sectors in Dubai and Sharjah, providing an insightful view on the key drivers behind the figures and offering expert opinion for the year ahead.

  • In the aftermath of the recession, residential values plunged by 49.7% in Dubai, but now stand 36.9% above the Q2 2009 market low
  • Residential capital values have risen by close to a third during the first six months of 2013; however these still remain 31% below the Q3 2008 market peak
  • Surging demand so far this year has helped to push rental values up by 11.3% across Dubai during the first six months of 2013
  • Sharjah benefitting from demand spill from Dubai, with average rental rises of 7.1% in H1
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Cluttons report: Dubai residential property market recovery gathers pace, with Sharjah also benefiting.

The heightened economic activity in Dubai has undoubtedly been supported by the recovery of the Emirate’s real estate sector, with capital values in some residential submarkets quickly closing in on their Q3 2008 pre-crisis peaks. During Q2 alone, villa values rose by an average of 21 percent, compared to 24.4 percent last year. Apartments on the other hand recorded capital value increases of 25.1 percent in the second quarter, almost double the corresponding 2012 figure of 13.4 percent. Overall however, values remain -31.1 percent below the previous peak suggesting that recent IMF concerns about the market overheating may prove too negative.

The increased level of job creation is translating into upward pressure on house prices and rental values, which is illustrated by the fact that capital values have risen by close to a third during the first six months of 2013; however these still remain 31 percent below the Q3 2008 market peak. Both villas and apartments are seeing strong capital gains, with the latter having recorded price growth of 25 percent in Q2 alone, almost double the corresponding figure for 2012. In the aftermath of the recession, prices plunged by -49.7 percent, but now stand 36.9 percent above the Q2 2009 market low.

The drivers behind the price growth do not however mirror those seen during the market peak in 2008. Dubai has benefited tremendously from the Arab Spring and its perception as a ‘safe haven’ for refugee funds from the broader Middle East region. Furthermore, there has been a rise in domestic demand, fueled in part by favourable lending rates, which are encouraging a greater number of buyers to step into the market and also by the soaring rents, which are driving some tenants to consider the option of home ownership as a way to avoid being caught out by rising accommodation costs. As the pace of job creation accelerates, there is a marked increase in tenants seeking accommodation, particularly in well-established submarkets in New Dubai. The surging demand so far this year has helped to push rental values up by 11.3 percent across Dubai during the first six months of 2013.

Steve Morgan, Head of Cluttons Middle East, added: “The resounding success of Dubai residential so far this year should not come as a surprise given the magnitude of the correction recorded during the bottom of the market; we are still far off the previous peak, when growth was far more unsustainable. The acceleration in residential capital values this year has been underpinned by robust levels of job creation and a rising population, rather than being fuelled by ‘fly-buy’ dealers, as was the case in the past. We are yet to see a definite solution on the matter, although this is less concerning than in 2008, given the increased number of end-users in the market.”

Across the border, Sharjah’s residential market, whose successes are closely linked to Dubai’s, has seen a rise in rental values in submarkets closest to Dubai, such as Al Nadha and Al Majaz. The demand spill over phenomenon seen in the last property cycle is now being repeated, and the recent introduction of a Salik Toll Gate on the Al Ittihad Road and the removal of the daily AED 24 Salik cap does not appear to have dented the appetite to live in Sharjah and commute to Dubai for work.  This demand has translated into a rental value increase of close to 7.1 percent across the Emirate during Q2 2013, which continues to remain popular due to the relative affordability of rents.

The full ‘Property Report’ will be available online later in the week at: www.dubai.cluttons.com.

Photo: Sonya Bobb/Flickr

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