Luxury property in Dubai recorded the world’s second highest price increase last year, according to international property consultancy group Knight Frank.
The value of top end homes in the emirate rose 20 percent, equal to the island of Bali and behind only the Indonesian capital, Jakarta, which saw luxury property prices increase by 38.1 percent.
According to Knight Frank, the rapid price rise was led by the world’s rich searching for safe haven investments and a recovery from the global financial crisis.
Property values plummeted by as much as 60 percent after the onset of the crisis in 2008 and did not begin to recover until last year.
“Dubai stands out with strong growth of 20 percent in the price of luxury villas during 2012,” the report says.
“The epitome of the global downturn between 2008 and 2009, the emirate rebounded in 2012 on the back of a resurgence in demand. This was aided by lower prices and underpinned by its location as a strategic hub, able to attract wealth from the Middle East, North Africa, the Indian subcontinent and central Asia.”
The surge in property prices in Dubai led the Central Bank of the UAE to announce in January new mortgage restrictions that would limit the loan-to-value ratio at 50 percent for expats and 60 percent for nationals.
The Emirati Banks Association has formally asked the Central Bank to amend the cap to 75 percent of property value for expats and at 80 percent for UAE nationals.
A decision is expected before the end of the first half of 2013. However, with as much as 80 percent of property transactions in Dubai done with cash it is unlikely to have much effect on values.
The resurgence in international interest in luxury Dubai property helped fuel the recovery, according to Knight Frank.
“Dubai has recovered some of its popularity with Russians, but competition from buyers from North Africa, Pakistan, India and Iran has been an important factor in helping to drive prices higher this year,” the report says.
Prices are expected to continue to rise, with 40 percent of Middle East and African high net worth individuals (those worth US$30 million or more) claiming they were likely to purchase a new home over the next 12 months, according to a Knight Frank survey.
“Globally, some 43 percent of clients are expected to show an increased interest in purchasing more city property this year,” the report says.
“The trend looks likely to be led by clients based in the Middle East & Africa (67 percent) and Russia & CIS (50 percent).
“From the responses to our latest Attitudes Survey, it seems clear that the appetite of wealthy individuals for acquiring prime property is still strong. Moreover, it looks unlikely to diminish any time soon.”