Dubai property prices start to level off

House prices gained 10 per cent in the fourth quarter but apartment values fell by 4 per cent, data show.

The average price for houses and flats in Dubai in the final quarter last year rose to Dh1,022 (US$278) per square foot.

Dubai property prices stabilised in the final quarter of 2009 after a year of declines, data from Colliers International show. The Colliers Dubai House Price Index, which compiles mortgage data across freehold developments in the emirate, shows house prices ended the year at levels last seen in June 2007. "We have now seen for the last two quarters the index remain fairly stable," said Ian Albert, the regional director of Colliers, the property consultancy.

"I don't think we are going to see this huge fall or vast changes we have seen over the last two years." Property prices in the emirate rose quickly in 2008 as speculators bought and sold apartments in rapid succession, sending prices up by 43 per cent in the first three months. Those gains have since been erased. Overall house price values declined 42 per cent between the fourth quarter 2008 and the fourth quarter of 2009.

"We anticipate price fluctuations will become less pronounced as the market matures, providing early indications that Dubai house price values are getting closer to underlying values," said Mr Albert. The average rate for residential property in the final quarter last year rose to Dh1,022 (US$278) per square foot compared with Dh1,016 in the third quarter. The number of transactions declined 15 per cent in the last quarter compared with the previous three months, but the broker declined to disclose how many properties were bought and sold over the period.

While property prices rose 1 per cent in the last three months on the previous quarter, the increase masked a significant difference in the performance of apartments and houses. While house prices gained 10 per cent over the period, those for apartments fell 4 per cent. The rapid drop in prices resulted in many investors falling into negative equity and forced some to flee the country to escape their debts.

While international banks estimate that bad home loans could run to billions of dollars in Dubai, lenders have held back from repossessing homes in default because of untested foreclosure processes. That may be starting to change after Barclays said last week it had won several of the first repossession cases to make their way through the Dubai courts. The legal significance of these rulings remains unclear because the country's courts do not rely on precedents.

"What we have seen is that from mid-December until today there has not been many transactions," said Bernard Aoun, a manager at the property brokerage Better Homes in Dubai. "The year-end's celebrations have contributed to that, but it is mainly related to the market." Mr Albert said the performance of the market this year would be influenced by the new supply of completed units, the financial position of lenders and the fallout from the Dubai World debt restructuring.

The Dubai World conglomerate announced in November that it was seeking a six-month freeze on debt repayments. It has since been in talks with about 90 creditors to restructure as much as $22 billion. @Email:[e-mail]