Prices soar for low-budget housing in Dubai

In its Q1 report, Cluttons said prices are also rising at the higher end of the residential market, just not as fast. Between Q3 2012 and Q1 2013, average prices for high-end villas in Dubai rose by 8.9%, while mid-range villas gained 14.9% over the same period.

This trend has been mirrored in the apartment segment, where lower-budget units registered sale price growth of 14.6% over the same period. By comparison, both high and mid-range apartments recorded average price increases of 10% each.

The pattern is similar on the rental side as well, with the sharpest rise in rents recorded at the lower budget end of the market with a rise of 12.7%, followed by the mid-range segment that grew 7.7%; the higher end of the market was the weakest performing segment at 6.4%.

Cluttons' research suggests that rising rental values are driving tenants towards lower budget options, which have struggled over the past two to three years, with even more secondary and tertiary locations enjoying renewed activity.

The report said the overall trend in the marketplace is positive as strong economic activity driven by tourism and business has led to fresh property developments and confident property investment throughout the emirates.

"We are buoyed by the renewed confidence in Dubai's residential market and increased activity in the sector," said Steven Morgan, Head of Cluttons UAE. "This has naturally led to price rises - as much as 20% in one quarter. In many other developed markets this would be classed as a 'boom' and it would be short sighted not to have some consideration to this. We welcome moves from the Central Bank to prevent the development of an overheated market and the likelihood of a bust scenario."

The report noted that there was confusion in the Dubai property market during the first three months of this year following the Central Bank announcement of a series of loan-to-value cap levels for expatriates and UAE citizens applying for mortgages of 50% and 60% respectively.

"The bank is now in a period of consultation with the national banks and Cluttons speculates that a 'watered down' version of December's legislation may be implemented in coming months. However, it remains to be seen as to whether such measures will result in a move towards a market controlled by cash rich speculators," the report said.