Soaring property prices pose challenges for Dubai, says CBRE

In its latest report on Dubai's property market, CBRE said established residential locations in the emirate remain 'incredibly' popular among Dubai's expatriate workforce, with rents and occupancy rates continuing to grow at a rapid rate amidst strong investor and occupier demand.

Established residential locations, such as Dubai Marina, Emirates Living, Palm Jumeirah and Downtown Dubai, continue to dominate activity in the sales market, with 60% of all transactions in volume terms, CBRE noted.

On average, a two bedroom unit in these locations has witnessed a 27% increase year-on-year, with the largest single jump being noted in The Greens, where rental rates have risen by over 40% during the past year.

But the steep rise in price also poses potential risks for the market, CBRE warns. "The residential sector has maintained positive momentum amidst solid market fundamentals and steady economic growth. However, there is a modicum of concern that the recent escalation of sales and leasing rates could actually be a little ahead of reality," the report noted.

CBRE said one of the key drivers of this disconnect during the past 18 months has been the substantial return of foreign investment and speculator/investor activity, which is a trend that has been particularly evident at recent off-plan sales launches.

Dubai has seen a series of mega property launches over the past year, including an announcement this week from Damac in which unveiled plans to build a 28 million sq ft development - its largest ever - in Dubailand.

"The current rate of growth will have to be monitored quite closely and with a certain degree of caution, with some residents already starting to feel the pinch of the rising cost of living," CBRE cautioned. "This is a factor that if not mitigated through new supply and further regulation and intervention, could eventually impact upon Dubai's competitiveness as a burgeoning global business environment."

CBRE's report echoes recent concerns raised by Jones Lang Lasalle, which warned that the sharp rise in rents and prices could damage the long term sustainability of Dubai as a city in which to work, as firms might begin to looking to expand elsewhere where labour costs are more reasonable.

It pointed out that one of the major factors constraining the growth of employment in Abu Dhabi in recent years has been the higher residential costs - which have been a major factor in the decision of many households to remain in Dubai and commute.