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Thu 14 Aug 2008 12:53 PM

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Stronger dollar 'will deter Dubai speculators'

EXCLUSIVE: Investment bank research chief predicts continued real estate growth.

Fears over the health of Dubai’s real estate sector are overblown and a stronger dollar would help rid the market of speculative buyers, Al Mal Capital’s head of equity research said on Thursday.

Prices are likely to ease in 2010 after rising another 10-15 percent in the coming year, but developers like Emaar will still be making a significant profit at those levels, Robert McKinnon, the investment bank’s managing director of equity research, told Arabian Business.

“I think a 10 percent decline would actually not be a problem for this market. The market has been up 10 percent in the last four months,” he said after latest figures for July showed a 40 percent increase in real estate prices compared to the same month last year.

Last week, a report from Morgan Stanley predicted a ten percent correction in Dubai’s booming real estate market over the next two years.

“In 2009 and into 2010 I think prices should remain strong, but I don’t think they’ll keep rising at the same pace,” McKinnon said.

The difficulty of getting a demographic view of income levels in the UAE makes prices harder to predict than in other, more developed markets.

“We use GDP per capita, which doesn’t really account for the fact that a lot of wealth could be sitting in the top two percent of the population, who don’t need four or five houses,” McKinnon said.

But comparing rental yields with mortgage costs suggests price gains should start to moderate next year.

The rising US dollar, now at its highest level in almost six months, has sparked fears of international investors exiting the Dubai market, where a significant number of buyers come from the UK, Europe, Asia and Russia.

Along with the benefit of dampening inflation, McKinnon believes a stronger greenback could help curb speculative activity since it would favour domestic buyers looking to buy a house to live in.

“[The rise] is not yet a trend for the dollar, but if it continues it could be a positive in terms of encouraging the type of buyer that we want buying in the market rather than speculative buyers,” he said.

Rental yields in Dubai remained flat in July versus June, at a median rental yield of 6.8 percent, down from 7.8 percent in July last year, according to a research report from Al Mal Capital released today.

The decline in rental yields over the last year has been driven mainly by higher prices as the median rent in Dubai rose by roughly 23 percent in the period, it said.

The bank’s Dubai real estate price index indicated a year over year price appreciation of 39.9 percent in the residential market in July, while prices in the commercial segment rose by 40.5 percent.

Residential property prices were 0.7 percent higher in July on the month, while the less seasonal office market rose 3.7 percent.

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