August 1 2010, Dubai UAE: Average house prices in Dubai have fallen slightly according to the Colliers International Q2 2010 Dubai House Price Index published today. The index recorded a 4% decrease in house prices since Q1 2010, the first quarter-on-quarter contraction to be registered by the index in 12 months.

The index slipped 5 basis points from 119 in Q1 2010 to 114 in Q2 2010, while the blended average house price for Q2 2010 was approximately AED 1,014 per ft2 (AED 10,915/m2), down from AED 1,061 per ft2 (AED 11,420/m2) in the first quarter.

Despite the second quarter slide, the index still shows a 7% increase in overall house price values year-on-year from Q2 2009 to Q2 2010. However, Colliers International cautions that forthcoming housing supply and declining rental incomes are likely to put downward pressure on house prices moving forward.

“Compared to the extreme fluctuations recorded by the HPI from ‘08 to ‘09, when we had a 50% increase in house prices before plummeting to 2007 levels, a 4% decrease in this quarter is a relatively modest change. In the last 12 months we’ve seen the index moving only 1.8% from the average value of 115 index points, indicating a measure of stability over the past year. However, we anticipate a further slowdown and we have an ongoing concern of the new supply entering the market, which will further impede recovery,” said Ian Albert, Regional Director at Colliers International.

The global real estate consultancy expects around 33,000 units to be released onto the market by the end of 2010, down from its earlier estimate of 41,000 following project delays or rescheduling. However, given Dubai’s history so far, a large number of these units may not be delivered on time and may cross over into 2011.

“There are already more than 340,000 residential properties in Dubai with an average occupancy rate of 87%, with further declines anticipated. The market simply cannot absorb the additional supply unless the population grows and/or the release of stock is slowed down,” explained Albert.

The situation is compounded by dwindling rents in the emirate with Dubai’s overbuilt residential market contributing to more than a 50% decline in average rental rates since 2008, discouraging ownership and further dampening demand.

“Although this is good news for tenants, a reduction in the income generation potential of a property impacts negatively on its market value, making it less attractive to investors. This will be another factor to monitor over coming quarters,” said Albert.

The index, compiled using actual mortgage transaction data from a consortium of financial institutions, showed transactions increased by 15% in Q2 2010 compared to Q1 2010. Despite the increase, Colliers International said demand remains sluggish.

As in the previous quarter, demand was driven by end-users and oriented towards established residential projects with completed infrastructure and facilities.

“Banks continue to be cautious and selective in mortgage finance. Mortgages are mainly offered on completed projects and to borrowers who pass the banks’ rigid approval processes,” said Albert.

Key report findings:
· Decrease in the overall index of 4% between Q1 2010 and Q2 2010
· YOY increase of 7% between Q2 2009 and Q2 2010
· Blended average rate for residential property in Q2 2010 is down from AED 1,061 per ft2  (AED 11,420/m2) to AED 1,014 per ft2 (AED 10,915/m2)
· Apartment prices decreased by 5% in Q2 2010 compared to Q1 2010
· Villa prices decreased by 3% in Q2 2010 compared to Q1 2010
· Townhouse prices decreased by 8% in Q2 2010 compared to Q1 2010
· Apartments constituted 34% of the total transactions
· Villas constituted 49% of the total transactions
· Townhouses constituted 17% of the total transactions
· The number of transactions increased 15% in Q2 2010 compared to Q1 2010

To download a copy of the Q2 2010 Dubai House Price Index visit www.colliers-me.com