Dubai home prices up 40%

source The National

Dubai property prices rose by about 40 per cent in July compared to the same period last year, the investment bank, Al Mal Capital, said yesterday.

According to a report based on Al Mal’s Dubai property price index, prices in the residential segment have seen a year-on-year appreciation of 40 per cent, reaching the median price of Dh1,831 (US$498) per square foot, while the commercial segment appreciated by 40.5 per cent, with a median price of Dh2,137 per sq ft.

Meanwhile, rental yields declined slightly last month to 6.8 per cent, compared to 7.8 per cent the year before, as property prices outpaced rental rates, said Robert Mckinnon, the managing director of Al Mal Capital, in a note to investors.

The decline in rental yields has been driven mainly by higher prices as the median rent in Dubai has increased by roughly 23 per cent over last year’s levels. For commercial properties, the median rental yield also declined slightly, to 11.9 per cent last month from 12.4 per cent in June.

The seasonal slowdown continued in July, with prices on the residential segment only increasing a moderate 0.7 per cent over the previous month’s levels. However, the office market has been bucking the seasonal trend and remains strong, with a 3.7 per cent month-over-month increase.

“Additionally, though Dubai has experienced significant yield compression [about 100 basis points], yields still have a bit to come down in our opinion,” said the report. “We still contend that yield compression will come from real estate price appreciation, rather than declining rental prices.”

Property prices in Dubai have soared since foreigners were given the right to own real estate in limited areas in 2002, and demand outstripped supply on record population growth.

However, “if the US dollar continues to strengthen, some portion of investment demand would weaken for foreign property investment”, the report said. Significant investment in the sector is coming from areas that do not deal in the US dollar: the UK, Europe, Asia and Russia. A rising dollar leading to a decline in purchasing power may prompt these investors to reconsider their purchasing decisions, said the report.

“It is, however, important to note that taking this more speculative type of investor out of the market could be better for the longer-term real estate picture,” Al Mal Capital’s researchers said. “We expect that any moderation in prices would ease the transition from an investor-driven market to an end-user market. In our opinion, this would lead to a market driven less by liquidity levels and more by the already strong supply and demand fundamentals.”

“The euro has weakened by about five per cent against the dollar during the last two or three weeks,” said Giyas Gökkent, the head of research at the National Bank of Abu Dhabi. “But I don’t think that this is enough by itself to stop speculation. What will in fact impact speculation is the change in the interest rates.”



ngillet@thenational.