Residential property prices in Dubai are in the midst of another boom, but this time it's fundamentals – and not speculation – at play, a leading global bank has said in a new report, indicating that the rally will continue as long as the fundamentals remain in place.
Economic growth, improving demographics, return of investor confidence and improving regulations have been cited as the primary factors fuelling a remarkable recovery in Dubai's house prices, since bottoming out in 2009.
According to a report titled 'Dubai housing: Fundamentals not speculation,' published this morning by Standard Chartered bank, Dubai's housing market is expanding on the back of improving fundamentals, and a number of factors including subdued mortgage growth, low off-plan sales and increasing housing regulation differentiate this price rally from the one in 2008.
"Housing prices in Dubai are rising on the back of strong demand and much-improved economic fundamentals. Following a sharp contraction in both prices and volume of transactions in 2009, Dubai's housing market began to recover very gradually in 2011.
"Slowly but steadily, confidence has returned to the market," writes Carla Slim, the author of the Standard Chartered report.
The pace of recovery has gathered substantial momentum now, with villa price climbing by almost a quarter and apartment prices surging by almost two-fifths in the past year, even as rental increases have been trailing these price-rises.
"The second quarter of 2013 marks the fourth consecutive quarterly increase in residential prices. In the past 12 months, residential prices have increased by 38 per cent for apartments and 24 per cent for villas, with rents increasing by 20 per cent and 17 per cent, respectively," Slim reckons.
The bank analyses the various factors fuelling this price rally, and concludes that unlike in the past6, the current rally it isn't driven by speculative excesses.
"We look at the drivers of the recent price action, and assess whether the recent price increases are the result of excessive speculative behavior which could give rise to another bubble," the report says.
"Our conclusion is that, at the moment, the market seems to be driven primarily by fundamentals rather than speculation. Although there is a risk that this could change, it is encouraging that regulators are drafting laws to curb excessive speculation in off-plan properties," it further adds.