Recovery takes observers by surprise, defying recent predictions that values would keep falling until end of the year.
Property prices rise in capital and Dubai
Property prices have begun to rise again in parts of Abu Dhabi and Dubai after a nine-month fall, brokers and bankers say. "The availability is suddenly a lot less in the last three to four weeks and we are seeing a dramatic increase in demand," said Andrew Covill, the head of investment sales at LLJ Property.
The signs of recovery apply to completed and nearly completed property only, but have nonetheless surprised some market watchers. A report commissioned by Better Homes, one of the country's largest real estate brokers, just six weeks ago predicted prices would keep falling until the end of the year, and only recover in 2011. The new movement also follows the thawing of credit markets, a sharp rally in regional stock markets and a doubling in oil prices over the past six months.
"After a fall of 30-40 per cent, the first signs of stabilisation in Dubai's property sector have appeared, taking observers by surprise since further declines were expected," said Philippe Dauba-Pantanacc, a senior economist at Standard Chartered Bank. Prices for near-complete property in Al Reem and Raha Beach in Abu Dhabi, for example, have risen by 10 per cent compared to last month, while villas in Al Reef were up by five to seven per cent.
In Dubai, the price of homes in The Springs, Jumeirah Village, The Greens, The Green Community and Jumeirah Islands have risen from their lows in January by between five and 30 per cent, according to Cluttons, an estate agency. "The properties under Dh2 million [US$540,000] seem to have gone up a bit, but not the top end," said Ron Hinchey, a resident partner at Cluttons. "It's like any market: the cheaper you get, the more people who can buy in that market."
Prices for some properties in Dubai fell by up to half between September last year and January as distressed sellers without adequate financing drove asking prices down to get out of the market. But now the amount of heavily discounted property has dropped sharply. In its latest report on the property market, HSBC reported prices in Dubai rising four per cent in April compared to the previous month and another five per cent in May. The price of flats, which account for 85 per cent of transactions, rose by nine per cent last month, but villas fell by 11 per cent, it said.
However, prices were on average still 23 per cent below their September peak. "Market data from April and May show a range of positive indicators," said David Lepper of HSBC Global Research. "Agreed property sale prices are rising, volumes are holding up well, and banks have loosened their lending criteria. "However, we will not be able to discern a sustainable trend until later in 2009," he added.
"While we note these positive developments, the market as a whole is coming off a very low base, given the sharp declines since the market peak. "Credit growth remains subdued, and the UAE economy still has challenges to deal with." Brokers added, however, that the off-plan market was still seeing almost no trade, as investors had lost confidence in many developers. Demand was mostly from people who needed to move in immediately or were expecting good rental yields, they said.
Some brokers cautioned the recent rises could only be temporary. "I don't think the bottom has hit," said Iseeb Rehman, managing director of Sherwoods, the brokers. "We are entering a quiet period of summer and Ramadan where transactions are generally very limited. "But at least the bottom is in sight and we know where it is, whereas in February nobody really had any idea. We expect to really feel the bottom in the fourth quarter."
Standard Chartered said one of the major risks for the market in the coming months was the possibility of many people leaving the country having lost their jobs. If the rises do continue, it may be partly down to easier credit. At the height of the credit crunch, last autumn, some banks would only lend 65 per cent of a property's value for a mortgage; that figure is now back up to between 80 and 90 per cent for a number of them.
Mr Hinchey said his company had compiled around 100 mortgage valuations in May, compared to 40 in January, a further indication of more activity in the market.