By Andy Sambidge and Alex Delmar-Morgan
New report reveals price fall in Q4 of 2008 due to negative sentiment but still up 59% year-on-year.
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.
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
Where are they getting these figures from? A quick look on any property website will confirm that you would be able to pick up a completed, vacant 3 bed townhouse (Springs/Reem etc.) for no more than AED 3M right now. That's at least 25% off the Q2 2008 pricing. The sooner people stop pretending that things aren't all that bad at the moment, the sooner prices can find the bottom and a sensible market (realistically priced and without expectations of stellar growth) can start up.
When sales volumes collapse 45 per cent, surely a little correction in the price structure might be expected. Even a fifth-grader could tell you if the sales aren't there then the values aren't either. Just because the sticker prices haven't fallen realistically yet, doesn't mean that doggie in the window has a buyer.
Dubai would have much more credibility if they had an official Real Estate Board that would communicate transparent and accurate data. Unfortunately, we must rely on our own personal research to find out the truth of the collapsing market. Such a PR article, written by Real Estate Company Colliers is at least truthful in reporting a drop but the percentage drop is of question.
The beginning of a price decline is always the period of denial. Buyers won't pay the high prices, sellers are in denial and won't cut. The end result is a massive fall in the volume of sales (which is what we see above). The big price falls kick in later, although there is certainly some panic selling going on in Dubai already. We saw exactly the same in the UK at end of 2007. But month-on-month price falls have continued to accelerate there, and are bigger than ever more than one year later, with no end in sight yet. Those in Dubai expecting a quick wobble and then back to business as usual in a month or too are completely deluding themselves. Colliers are deluding themselves if they think rental demand will quickly pick up. House price crashes are not caused by recessions, on the contrary, they cause recessions. The UK, US and Europe all went into recession as their property bubbles collapsed, credit dried up and jobs start being lost. Dubai, despite what some like to believe, is not immune to the laws of economics. A recession is inevitable, and costs like rent must fall if competitiveness is to be restored. Dubai simply cannot afford to be more expensive than London at a time when overseas investors are pulling out and tourists are staying at home.
I couldn't have said it better myself, such preposterous figures only add to the aggravations of others and 'boost the morale of greedy investors!'
What a joke of a figure. Do you just make this rubbish up. Nobody is buying, nobody can get a mortgage, no body wants to buy even if they could because your told what you can do and how you should live in what you bought. I would buy a villa now if i could share it with my friends to help pay the cosy but then i would have to do it with no electricity or water. Your just making this place worse for all concerned. Write something thats true, even if its bad, 6 months down the line they will only complain about how you lied to them anyway.
I fully agree with the Consultant prices in the springs have gone down from 4 - 3 million DHS in the past 3 months. It's time to face reality and stop watching "Feel Good shows" like Dubai One news @ 830pm each evening!
Price of real estate in dubai or UAE is crazy ; AED 3M for 3 bedroom townhouse in the desert sand has no sense , for that price you can buy a 5 bedrooms fantastic villa with seaview in most of the european rivieras, realstate speculation is really crazy in dubai ...
Even after the decreases, prices are still way too high. Entry level should be AED500 per sq ft. Average price should be AED1100 per sq ft. Developers need to stop ripping people off.
What makes these consultants worthy of publishing comments in all the prominent publications? they have no clue of what is happening. The prices have fallen from 25-40% across the board. It's seven years now since the market opened yet the government can't tell clearly that a residence visa will be given or not? or at least a firm statement of rules and procedures. Even this is a matter of speculation in Dubai, the whole market was anyway under specultion mode. The developers are charging service charges without any limits on them but rentals are governed by rent caps. Who can affort to buy and maintain an apartment after paying AED 30 per sq ft as annual charges. It is as good as paying rent for your own apartment. Such funny thing can happen only here.