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Residential property prices in Dubai fell by 8% in the last three months of 2008

The last three months of 2008 saw many lending institutions reduce their loan-to-value ratios available to mortgage seekers and adopt a more selective view towards applications which had an immediate effect on the property market, according to the Colliers International Q4 2008 House Price Index.

The third quarter saw a 45% drop in transaction volumes. Apartment prices fell 11%, townhouses saw a slight rise of 1% and villa prices fell 3%.

It shows that overall the average price level in Dubai is now similar to what was recorded at the beginning of the second quarter in 2008. But despite the price fall year on year growth was 59% between Q4 2007 and the same period in 2008.

Analysts also believe that international exchange rates also played a role in the price fall, as the decline in the value of major currencies made Dirham denominated assets more expensive and discouraged some international investors.

The global economic crisis, the postponement of developments by large government-backed developers and concerns over job security further deterred potential property investors as they await signals that the market has bottomed.

'There is no escaping the fact that for the first time since the HPI was launched, overall average residential prices in Dubai have fallen. Investors accustomed to continual price rises will have to recognise this, as the global financial crisis impacts the region,' said Ian Albert, Colliers International Regional Director.

'However, an overall average price fall of 8% for the fourth quarter is not as bad as everyone had feared. What established investors now need to consider is at what stage they entered the Dubai market because this will broadly determine whether the value of their investment has grown, declined or remained static,' he continued.

'The mass speculation of recent times clouded for many the reality that real estate is a long term, illiquid asset class. We are seeing the next stage in the property cycle, as speculators are driven out of the market and long term, end-user investors become the primary focus,' he added. 'The levels of growth previously seen were, frankly, unsustainable and in the shake-out we expect the weaker players to fall away, which will benefit the market over the long term.'

With a maturing property market environment, Colliers emphasized there will be a return to fundamentals, where developers that focus on the end-user by building high quality, well located and properly designed projects will outperform the rest of the market.

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