Oct 30 2008

UAE property prices increase 11-17%

Prices in the UAE property market surged in September with Dubai registering 17 per cent increase month-on-month and 11 per cent in Abu Dhabi, compared to an average of two to three per cent during the summer months, according to a new report.

"Price growth is picking up again after a brief moderation during the summer. However, while prices remain on an upward spiral, rental rates in Dubai seem to be stabilising, thereby compressing rental yields. This shows we have reached a level where affordability is getting breached," HSBC said in a report released recently on the UAE real estate market.

According to the bank, the market will remain tight at least until 2010.

"As we mentioned in our previous reports, the government can manage supply through its direct and indirect ownership in Dubai's largest developers. We estimate roughly 90 per cent of upcoming supply in Dubai is controlled by Nakheel , Dubai Holding and Emaar ."

The thing to look at now is demand, which is being affected by several factors. Price appreciation is breaching affordability, which will be further amplified by upward pressure on mortgage rates and declining loan to values. "The situation has not been helped by the recent stock market declines, which have highlighted the fact that the region is not immune to global trends, whether in equity, debt or property."

HSBC believes the off-plan market will be the hardest hit and the first to be affected, given the high level of speculation. "On the other hand, we believe that ready units will be supported by demand, and any weakness will therefore be less pronounced.

"The fall in prices should be limited to the level where rental yields are at the mortgage rate or at a slight discount, which will vary from segment to segment."

While prices in the UAE are becoming less affordable, Dubai unlike Abu Dhabi, offers a wide range of units catering to most income levels. "Price softening in the real estate market is not only healthy, but necessary at this point for the sustainability of the economic story," the bank said in the report.

By Parag Deulgaonkar

© Emirates Business 24/7 2008

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