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Dubai property prices show slight rise but growth expected to drop to zero

In the three months to September house prices increased by 5%, a tiny amount compared with previous rises showing that the global property downturn is now seriously affecting the Middle East.

An examination of prices over the last year shows that prices increased by 43% in the first quarter but that growth rate fell 16% by the second quarter, according to Colliers International. Analysts now expect growth to be 0% in the fourth quarter or even drop into negative figures.

Growth in residential prices is expected to slow further as the year comes to an end. Nevertheless, year-on-year growth in the third quarter was 80%.

The negativity in the market is most notable in places like Palm Jumeirah, where prices have fallen by up to 40% since September. Some previously much sought-after residences in the Burj Dubai area have also seen price drops of up to 30%.

The main reasons are an increased number of homes coming onto the market and loans being hard to obtain because of the international financial crisis.

'Growth is slowing. What's happened is the formation of micro-markets. For instance, values in DIFC, from a sales and a leasing perspective, are still strong,' said James Knowles, director of sales and leasing at Asteco.

'The volume of transactions so far in the fourth quarter is low, but this is because people are now more cautious about investing and limited money is available from lenders. The 5% increase in house prices is also not bad compared to other property markets that have slowed more drastically,' he added.

There is good and bad news according to Ian Albert of Colliers. 'On the one hand, the index results show a 5% increase in overall residential prices for the third quarter, which is good news. On the other hand, over the past three quarters, the rate of growth has slowed to the point where we expect overall price growth to enter negative territory in the fourth quarter,' he said.