Dubai house prices slump 8% - Colliers

House prices in Dubai fell eight percent in the fourth quarter of 2008, easing for the first time in the year, due to tighter liquidity and negative sentiment, property consultants Colliers International said on Tuesday.

Year-on-year prices for the fourth quarter rose 59 percent, while transaction volume fell 45 percent compared to the third quarter of 2008, Colliers said in a quarterly price index for the emirate.

Prices rose 42 percent in the first quarter of 2008, 16 percent in the second quarter and 5 percent in the third quarter according to previous Colliers International reports.

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.

Ian Albert, Colliers International's 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."

Negative sentiment from the global financial crisis led to a fall in demand for property and was reinforced by postponements of developments and job redundancies, the report said.

Year on year, apartments were the worst performers in Q4, dipping 11 percent with villas falling 3 percent. Town house values rose 1 percent.

Uncompleted properties fell by 10.4 percent when the Burj Dubai development was included in the index.

Likewise, completed properties in Dubai dived 5 percent when the Burj development was included in the index.

"What we saw in Q2 and Q3 last year was very high levels of speculation in the Burj project, so much so that even before the credit crisis started to take effect, some banks were withdrawing finance availability," said Albert.

"Property prices rose at exponential rates in Q2 and Q3, and the greater the speculation, the more likely they are to fall at a precipitous rate."

The increase in the value of the UAE dirham because of the appreciation of the US dollar means that property in Dubai has become more expensive to other markets, causing investors to look at opportunities in other countries, further reducing demand in the local market, the report said.

Rents are expected to ease early in the year but will stabilise quickly with demand in the rental sector picking up as tough market conditions slow transactions and investors step back and assess market conditions, Albert said.

Albert said he expected there would be fewer developers in Dubai by the end of the year as they consolidate to strengthen their balance sheets and diversify portfolios, while the emirate would see further projects delayed or postponed.

Key findings:

Quarterly overall average price decline of 8 percent

Year-on-year overall average price growth of 59 percent between Q4 2007 and Q4 2008

45 percent drop in transaction volume in Q4 2008 compared to Q3 2008

Apartments overall average price fall of 11 percent in Q4 2008 from Q3 2008

Townhouses overall average price rise of 1 percent in Q4 2008 from Q3 2008

Villas overall average price fall of 3 percent in Q4 2008 from Q3 2008

Completed properties fell by an average 5 percent when the Burj Dubai Development was included in the index

Uncompleted properties fell by an average 10.4 percent when the Burj Dubai development was included in the index

Completed properties fell an average 1.6 percent when Burj Dubai Development was excluded from the index

Uncompleted properties rose by an average 5.7 percent when Burj Dubai Development was excluded from the index

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