Residential property recovery in Dubai gathering pace, says latest analysis from Cluttons

Dubai’s residential property market recovery is gathering pace with Sharjah also benefitting, according to the latest Middle East market outlook from Cluttons.

In the aftermath of the recession, residential values plunged by at least 50% in Dubai but now stand 36.9% above their market low in the second quarter of 2009.

The report shows that residential capital values have risen by close to a third during the first six months of 2013 but they are still 31% below the market peak in the third quarter of 2008.

However, 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 and Sharjah is benefitting from demand spill from Dubai, with average rental rises of 7.1% in the first half of 2013.

The Summer 2013 report from global real estate company Cluttons takes stock of the year thus far, looking at the residential and commercial sectors in Dubai and Sharjah, providing and analysis of the key drivers behind the figures and offering expert opinion for the year ahead.
It says that the heightened economic activity in Dubai has undoubtedly been supported by the recovery of the emirate’s real estate sector. During the second quarter 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 International Monetary Fund 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,’ the report says.

The drivers behind the price growth do not however mirror those seen during the market peak in 2008, it points out. ‘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 marketand 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,’ the report explains.

It also reveals that 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.

‘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,’ said Steve Morgan, head of Cluttons Middle East.

‘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,’ he explained.

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 report says that 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 AED24 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 the second quarter of 2013, which continues to remain popular due to the relative affordability of rents.