Growth in prime Dubai residential prices in the first half of 2014 was "sluggish" due to a combination of higher transfer fees and the introduction of mortgage caps which were introduced late last year, Knight Frank has said in a new report.
Its Dubai Prime Residential Review for Spring 2014 said prices rose just one percent in the first three months of the year, with estimates suggesting that the second quarter was "equally sluggish".
By comparison, prime prices in Dubai rose on average by four percent per quarter last year, the real estate consultancy said.
Knight Frank said mortgage caps appear to have hit the emirate’s residential property market especially hard, as around 25-35 percent of luxury home buyers rely on mortgage finance for purchase.
The report said price growth was likely to resume in the second half of 2014, with single digit increases likely during 2015.
Victoria Garrett, Knight Frank's associate partner of residential, said: "The double whammy of higher transfer fees and the new mortgage caps are having their desired effect, although the latter has been especially effective in dampening buyer activity.
"In Q1 2014, transaction volumes across our prime basket of properties were 10 percent lower compared to the preceding three months and were nearly 28 percent below a year earlier."
She added that Dubai’s luxury home prices still look relatively low in historical terms, as well as compared to other global cities.
In Q1, the price of an average luxury home was 15 percent below its 2008 levels, with $1m buying approximately 146 sq m of luxury living space in the emirate – six times more than in London, seven times more than in Hong Kong and ten times more than in Monaco.
On future supply to the market, Knight Frank said there was little in the way of new, prime residential projects are due to be completed in 2014-15.
"That, combined with the healthy economic environment, a well performing labour market and the prospect of loosening credit standards, suggests that residential prices will resume on an upward path in the second half of this year, before seeing a single digit increase in 2015," said Garrett.
In March, Knight Frank named Dubai the world's best performing real estate market during 2013 with price growth nudging 35 percent.
The Knight Frank Global House Price Index showed mainstream property prices in the emirate rose by 34.8 percent during the last 12 months.
Although the increase slowed slightly in the last six months to 15.3 percent, Knight Frank said prices in Dubai were still 25 percent below their 2008 peak.