19 May 2010

Dubai House Prices Rise; Oversupply Remains an Issue

Bloomberg / Business Week

The completion of a “significant” number of new homes in Dubai later year will further pressure prices that rose 2 percent in the first quarter, Colliers International said.

Colliers, a global real-estate-services firm, estimates that 41,000 residential units will enter the market by the end of 2010, mostly in the low- to mid-income segments. House prices in the first quarter were on par with 2007 levels, rising on average to 1,061 dirhams ($289) a square foot from 1,037 dirhams a year earlier, Colliers said in an e-mailed report today.

“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,” Colliers’ regional Director Ian Albert said in the report. “Demand is not expected to match the growth in supply, creating downward pressure on property prices,” according to the document.

Dubai’s property prices have slumped more than 50 percent since their peak in mid-2008 as the financial crisis forced companies to dismiss workers. The market’s collapse followed a construction boom that created thousands of homes just as demand began to evaporate.

Apartment prices in the emirate gained 6 percent in the first quarter compared with the previous three months and villa prices rose 2 percent while the cost of townhouses was down 4 percent, Colliers’ house-price index showed.

Banks ‘Selective’

“Numerous” banks and mortgage providers increased the loan-to-value ratio to between 75 percent and 90 percent in the first quarter, according to Colliers. Some also lowered interest rates on mortgages to between 6.5 percent and 8.5 percent.

“Banks remain selective in offering finance, providing it against specific projects, mainly completed or near completion, and only to borrowers who can meet the strict lending criteria adopted by most banks,” Colliers said in the report.

The change of demand from speculative investors to end- users places more importance on the “liveability” aspect and there will be better demand and greater stability for projects that offer a “community lifestyle,” according to the report.

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