Apartments rebound
But the story for apartments had a twist in the tale. According to the HPI the average price of apartments fell by 10% in the first half of 2005, and then rebounded back in the second half, to close pretty much exactly where it started.
Now one factor that ought to be considered is that the general level of inflation in Dubai during 2005 was running at 15-20%, according to the National Bank of Dubai’s recent bulletin.
Hence if house prices are adjusted for inflation then apartment prices fell in real terms while, villas posted around a 10% real gain in value. On the other hand, rental prices soared by an average of 38% on Asteco’s estimate, so rental yields were up.
However, both the new price data and the rental yield situation support the argument to buy rather than rent Dubai property. The nominal value of an investment has been protected in 2005, and improved in the case of villas, while the rent that would be paid to live in a comparable property has gone up substantially.
End-users dominate
Agents report that the Dubai property market has swung from being a place for speculators out for a quick dirham to becoming an end-user market with today’s buyer typically being somebody who intends to live in a property, possibly for quite a long time.
It is not hard to see why. Rent rises in Dubai may have been capped at 15% for 2006, but this is still a lot on top of the 2005 surge in rental costs. Many longer-term residents are sitting down with a calculator to work out the total cost of buying and deciding that buying does make sense.
The HPI does not predict the future, but it does at least give a solid indicator of the recent past, and is not based on industry gossip but an accumulation of hard sales data. And if the pattern that has just been published continues into 2006 then we could see further support for nominal house prices, and even an improvement in popular locations and villas, which rather confounds doomsters who hope for a price collapse.
For with high general inflation nominal house prices may stay steady while the cost of everything else goes up considerably, though eventually property will move to catch up.
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Property & Investing