Overconfidence seen as biggest danger to Dubai property market

Its fourth-quarter report on the emirate's property sector said the market recorded a positive year in 2012, with the villa market continuing to outperform the apartment sector. However, while optimism returned to the Dubai market over the second half of 2012, the recovery has been very selective and focused on only the best quality projects, locations and developers, JLL said.

It noted that prime projects in well-established locations continued to see improved performance, but secondary locations were "still suffering from rental and pricing declines as tenants relocate to new high quality projects".

Looking ahead to 2013, JLL said the market is likely to see 'a broader-based recovery, but the significant levels of current vacancy and further new supply will limit the extent to which poorer quality projects and those in secondary locations will benefit'.

Improving sentiment and stronger economic fundamentals have resulted in a series of new large-scale projects being announced, JLL added. The most significant of these is Mohammed Bin Rashid City to be developed jointly by Emaar and Dubai Properties.

However, JLL cautioned that this renewed optimism also carries risks. "The biggest danger facing the market in 2013 is that confidence will again run ahead of end user demand, resulting in unsustainable growth in asking prices / rents and exacerbating the oversupply situation that characterises many parts of the market," it said.

JLL noted that in response to the potential overheating of the market, the UAE Central Bank announced new limits on loan to value ratios for all mortgages of 50% for expatriates and 70% for Emiratis. "The new guidelines are likely to reduce demand in the residential sector and slow the recovery of prices in 2013," it warned.

The report added that Dubai's real estate investment market had remained quiet over the fourth quarter of the year with no major open market commercial transaction recorded.

"Despite the lack of transactions, investment sentiment in Dubai is improving. The optimistic outlook is reflected in Jones Lang LaSalle's latest Investment Sentiment Survey, which shows investors from the region perceive Dubai as the preferred market," the report said.