Among the positive news emerging from the market of late was Nakheel's announcement earlier this week that it had closed land sales worth $114m and that investors had been "clamouring" to purchase plots at its Jumeirah Village Circle project. Combined with the recent success of its Jumeirah Park villa launch, these events 'reveal a very clear message: confidence in Nakheel - and Dubai - is back," said the company's chairman Ali Rashid Lootah.
Also making news this week was Emaar Properties, the developer of the world's tallest tower, which revealed plans to sell 253 new villas in the emirate's Arabian Ranches community. Emaar will be hoping to replicate the success it enjoyed from its previous sales launch in September, when all 542 units released for sale off-plan by the developer at The Address The BVLD serviced residences were sold out on the first day, with customers queuing up to two days in advance to place orders.
Other good news for the sector included data showing that the number of property transactions in the emirate jumped 50% in the first half of 2012 compared with a year earlier. The market can also take heart in knowing that villa prices in prime parts of Dubai have risen 19.9% in the first nine months of this year, which is double the rate of growth seen in prime central London prices over the same period, according to property consultant Knight Frank.
Downside risks remain
But although there is much reason for optimism in Dubai's property market, there are also newly emerging downside risks, according to a recent report by Citi Reseearch. "We caution against early signs of exuberance, such as the re-emergence of off plan sales and the risks of excessive supply given some of the recently announced projects. Such exuberance could undermine not only the sustainability of the real estate recovery but lead to dislocations in the wider economy as well," the report said.
Matthew Green, head of research & consultancy UAE, CBRE Middle East, also advises buyers to be cautious about the return of off-plan sales activity, which he sees as a red flag for the market. "While on the surface there appears to be some renewed interest in off-plan, the majority of real investors remain risk adverse to incomplete assets, particularly for projects that are still to even break ground," Green said. "Overall, we would continue to treat the off-plan market with some caution, and a consolidated return to speculative activity would signify a worrying trend."
He points out that while confidence has clearly returned for established communities such as Downtown, Arabian Ranches, Palm Jumeirah and Emirates Living, the recovery remains fragmented, with individual asset classes and locations performing independently from one another as a result of differing supply and demand fundamentals.
Just under 50,000 units are expected to be delivered in the emirate over the next three years, which is a fraction of the development pipeline during the peak. "This situation is compounded somewhat by the quality composition of the pipeline which is heavily focussed on secondary and tertiary locations," he said.
Green also noted that there will be one inevitable fallout from the likelihood that rents will continue to rise for well-located quality units in the emirate amidst tightening supply levels. "Over the past four years Dubai has become a more affordable environment for conducting business, but any sustained period of excessive growth in the residential sector could start to impact inflation levels, and that would have a negative impact on the emirate's competitiveness," he said.