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Dubai residential sub-market values nearing pre-crisis peaks

dubai3The 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, Cluttons said in its latest market analysis.

During Q2 alone, villa values rose by an average of 21%, compared to 24.4% last year.

Apartments on the other hand recorded capital value increases of 25.1% in the second quarter, almost double the corresponding 2012 figure of 13.4%. Overall however, values remain -31.1% 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% below the Q3 2008 market peak.

Both villas and apartments are seeing strong capital gains, with the latter having recorded price growth of 25% in Q2 alone, almost double the corresponding figure for 2012. In the aftermath of the recession, prices plunged by -49.7%, but now stand 36.9% 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 benefitted 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, fuelled 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% across Dubai during the first six months of 2013.

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% across the Emirate during Q2 2013, which continues to remain popular due to the relative affordability of rents.