(MENAFN- Khaleej Times) Residential prices in Dubai, which have risen more than 22 per cent in one year on the back of resurgent investor confidence, will continue to rally over the next 12 months but at a slower rate, property consultancy Jones Lang LaSalle (JLL) said on Thursday.
Describing the rate of upswing in Dubai house prices as unsustainable, JLL said "an extended period of slower and more subdued growth would be far more beneficial for the overall market than a continuation of the current rates of increase followed by another severe correction."
Although there are some worrying signs of overheating creeping into the market, conditions are different this time around that another bubble can be avoided, JLL said.
"While the current rate of growth exceed economic and demographic fundamentals, it remains lower than the levels experienced in 2007," Alan Robertson, Mena CEO at Jones Lang LaSalle, said in a report titled "Dubai residential prices increasing at unsustainable rate, but no sign of an immediate crash."
"The Dubai economy is recovering on the back of the 3Ts of trade, transport and tourism, with the Dubai Statistics Centre releasing new figures that show real GDP growth of 4.1 per cent over the first half of 2013. While the economic and demographic fundamentals have undoubtedly improved, residential prices have increased at a far higher rate, suggesting that speculative activity continues to influence the Dubai residential market," said Craig Plumb, head of research at JLL.
According to JLL, the current overheating would be tempered by new regulation of Dubai Land Department to curb excessive speculation. Dubai recently announced a hike in property transfer fee to four per cent from two per cent to prevent excessive speculation in the property market. The government is also working on introducing mortgage limits for expatriate and local investors.
Another possible deterrent to unbridled price escalation is new supplies. About 45,000 new housing units are expected to be delivered in Dubai before the end of 2015, representing an annual increase of around 16,000.
Dubais property market prices collapsed by over 50 per cent in 2009 after the global economic crisis. The IMF warned in July that overspending could leave Dubai vulnerable to another debt crisis if global market conditions deteriorated.
According to a survey by Knight Frank, Dubai home prices increased 21.7 per cent in the second quarter, the fastest pace in the world.
"Between June 2012 and June 2013, the price of prime residential developments in Dubai increased by21.4 per cent, with villa prices the first to rise, and apartments following in late 2012. Not all sectors of the property market have witnessed this level of recovery; it is predominantly the more established, popular and well-maintained developments € where demand remains high - which have done well.
Furthermore, prices in some prime developments, such as Palm Jumeirah and Emirates Hills, are nearing their 2008 peaks," Knight Frank said in its report. While the property market has heated up, it is not in a bubble, HSBC Holdings Plc said in a research note.
Asteco Dubai said in its third quarter 2013 report that year-on-year villa and apartment rents are up 19 per cent and 23 per cent respectively but still 31 per cent and 38 per cent lower than the same quarter in 2008. Office rents rose 43 per cent over past year, but remained 66 per cent below the same 2008 quarter. The report said although prices would increase further, it is unlikely that they will hit their 2008 peaks in the short to mid-term. The fundamentals that have been driving Dubai market upswing include political stability, trade links, a buoyant and diversified economy, regulatory infrastructure and an attractive tax environment.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.