Dubai's property sector forecast to see slower growth in 2013

While sales and rental rate increases in the emirate are likely to be more subdued in 2013, the recovery will extend to a wider cross-section of Dubai, as opposed to being isolated to prime neighbourhoods in the emirate over the previous year, according to a new report issued by real estate investment and advisory firm Jones Lang Lasalle.

"The market will experience a broader based recovery, with all sectors seeing some pockets of rental growth in 2013," said Craig Plumb, head of research at Jones Lang Lasalle, Mena.

Dubai' safe haven status, rising population, and improved price/rental performance have helped foster the improved market sentiment, and with many real estate projects announced in the past six months, this increased confidence has become more pronounced, the report added.

"Further analysis suggests Dubai has passed through the peak of its construction cycle, so increased demand will continue to reduce oversupply," Plumb said. "A number of major projects have been announced in Dubai recently, but these will take some time to come to fruition."

Still, JLL warns that not all projects or locations will benefit equally from the broader-based recovery, and it urges would-be investors to view the market with cautious optimism. "Good projects with secure funding and tenant commitments will succeed, but we must avoid the over-exuberance and oversupply seen before the global financial crisis.

Matthew Green, Head of Research UAE at CBRE Middle East, also forecasts that sales and leasing rates in Dubai's residential real estate sector will continue their upward trend this year albeit at a slower pace than in 2012.

In a new report, he says the country's strong economic performance is anticipated to fuel a further influx of quality workforce over the next 12 months, helping to sustain demand for mid and high end residential units.

He adds that the long-awaited Real Estate Investor Protection Law, which is expected to be released early this year, could help to further solidify the sector's recovery by regulating the off-plan market.

Green also said he believes that a move by the UAE Central Bank to cap loan-to-value ratios for homebuyers in the country would 'appear to be a reasonable response' to help ensure that local banks avoid being over-exposed to the property sector such as was the case during the economic crisis.

"Clearly, the government is looking to control speculation in Dubai's residential sector and avoid further overheating after increasing sales and leasing rates were recorded across much of the marketplace during 2012. However, whilst the move may have a moderate cooling effect on overall sales levels, current market growth is being driven by cash investors rather than end-users," he said.

"In 2012, Dubai's mortgage market was estimated at 20 - 30% of total residential transactions, reflecting a high degree of liquidity in the sector. This is a trend that is arguably more difficult to manage and control, at least without further regulation or the implementation of higher taxes and levies on property sales," Green added.