Q4 2008 House Price Index for Dubai shows average 8% price fall

Report  attributes fall to reduced liquidity and negative sentiment

Colliers International, the global real estate consultancy, today released its Q4 2008 House Price Index (HPI), the leading index of residential real estate performance in Dubai. According to the HPI, the house prices in the emirate dropped by an average of 8% between October 2008 and December 2008. Despite this drop in prices the index indicates a year-on-year price growth of 59% between Q4 2007 and Q4 2008. The index shows that the overall average price level is now similar to that recorded at the beginning of Q2 2008. Colliers says the index will help investors benchmark investment values over a period of time.

Colliers’ analysis of the index results attributes a combination of tighter liquidity and negative sentiment as the key factors for the price drop. According to the report, Q4 2008 saw many lending institutions reduce their loan-to-value ratios available to mortgage seekers and adopt a more selective view towards applicants. International exchange rates also played a role, as the decline in the value of major currencies made Dirham denominated assets more expensive and discouraged some international investors. While negative sentiment, precipitated by 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.

Ian Albert, Colliers International Regional Director said: “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. Tighter liquidity, more selective lending and growing negative sentiment are all bringing about these changes. However, an overall average price fall of eight per cent 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.”

Albert 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. 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.”

In what it says is a maturing market environment, Colliers emphasised 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.

Albert also invited other financial institutions to become contributors to the HPI: “The House Price Index is the most comprehensive and accurate provider of market information available because we work closely with the leading mortgage lenders in the UAE, representing 60 per cent of the market. We continually seek to strengthen the index by broadening our data base through the addition of other institutions.”

Key findings:

• Quarterly overall average price decline of 8%
• Year-on-year overall average price growth of 59% between Q4 2007 and Q4 2008
• 45% drop in transaction volume in Q4 2008 compared to Q3 2008
• Apartments overall average price fall of 11% in Q4 2008 from Q3 2008
• Townhouses overall average price rise of 1% in Q4 2008 from Q3 2008
• Villas overall average price fall of 3% in Q4 2008 from Q3 2008
• Completed properties fell by an average 5% when the Burj Dubai Development was included in the index
• Uncompleted properties fell by an average 10.4% when the Burj Dubai development was included in the index
• Completed properties fell an average 1.6% when Burj Dubai Development was excluded from the index
• Uncompleted properties rose by an average 5.7% when Burj Dubai Development was excluded from the index