The Next Steps for Dubai’s Property Market

Abu Dhabi Finance has recently announced that they are reducing their interest rates to a minimum of 5.5%. This has been seen as a positive move by many of Dubai’s property agents who believe that if the Dubai banks follow suit it could lead to an increase in market activity. It is obvious that the key factor in business is cash flow and if the cost of a mortgage and maintenance is higher for the landlord than the rent he is receiving for the property, it undoubtedly causes inequality and restrictions for the market place. Furthermore it does not encourage future buyers to enter the Dubai real estate market. Currently the lowest available interest rate in Dubai is 7.5% which may not be allowing existing and new landlords to maintain or grow their business.

If we look specifically at Dubai Marina, the average rent for a two bedroom flat is AED 120,000. From June 2008 until February 2010, there has been little alignment between transactional volumes and the average prices whereas one would usually expect a correlation. Transactional volumes are now at a reasonable level (approximately 150 per month) and it must be noted that they increased sharply in February 2010. The anticipated increase in lending could further propel the market in its recovery.

Rental prices in Dubai Marina have been consistent over this same period which could be attributed to sellers’ reluctance to reduce their prices further. In comparison, the pricing in Dubai’s International City has been erratic, possibly as it is a less prime area. However International City has seen a higher level of transactions but interestingly it has seen comparable monthly price decreases over the same period. However stabilisation is expected in International City in 2010 with further equilibrium in the region. Another area of recent speculation is the anticipated release of the apartments in Burj Khalifa in Downtown Dubai. The advertised rents are upwards of AED 350,000 and it will be interesting to see the actual transactional values of these properties.

There are several trends in the Dubai properties market which does suggest buoyancy for 2010. In conjunction with the pricing, the actual price spreads have stabilised with Dubai Marina operating at AED 1000 per sq. ft and International City at AED 800, which has also experienced the first signs of appreciation during Q1 of 2010. It’s also important to remember that in comparison to other global cities, Dubai Marina has only seen a decline of 11% since June 2008 and has therefore experienced relative stability.