Complex Made Simple

Dubai villa prices up 22% and apartments down 7.4%

The introduction of a new house price index from Dubai based Investment Boutique, a young real estate agency, has revealed a picture of surging villa prices and a decline in apartment prices. How should this data be interpreted?

Investment Boutique is to be congratulated on the launch of its indices for villa and apartment prices in Dubai. This is not a perfect guide, and draws on a sample of around 10% of properties changing hands. But the message is pretty clear.

Three-month rolling average villa prices rose by an average of 22% in the first six months of 2005, while apartment prices dropped by 7.4% in the first half of the year.

The index bases its apartment figure on prices of apartments in the Dubai Marina, Jumeirah Lake Towers and the Jumeirah Beach Residence, and is therefore somewhat less reliable for an overview than the villa index which includes a sample from the full range of sales.

But it would appear that the anti-speculative actions taken by developers this year has effectively cooled the apartment market, particularly the restrictions on the number of times an apartment can be re-sold.

Meanwhile, the number of off-plan apartment tower launches has continued a pace, and has seemingly more than satisfied investor demand. And at the same time the rising local UAE stock market has attracted investors away from off-plan apartments and into shares, although the recent stock market correction may put them off equities.

On the other hand, villas are mainly bought by end-users and as buy-to-let homes – and have therefore not been as caught up in speculative buying and selling. Also in terms of cost per square foot, villas have generally offered much better value than apartments, quite aside from having gardens which many long-term residents prefer.

But what these two indices fail to do is to establish an overall market trend. On balance, the price rise for villas more than outweighs the fall in prices seen for apartments. So Dubai property prices are strongly up in the first half of 2005, and not all apartment towers will have gone down either.

It remains to be seen if this trend continues in the second half of the year. Certainly there will be a shortage of villas in the secondary market on present market growth predictions, which logically means higher prices. Whether investors can be enticed back into the apartment market is a more difficult conundrum.

However, for the first time there is a definite indication of weakness in the apartment market – something that has been talked about anecdotally over the past few months.

But it may be premature to talk about a market correction before the apartments are handed over to their owners, mainly in 2007, and a new inflow of cash from investors exiting the UAE stock market can not be ruled out.