Property prices in Dubai are due to fall further this year despite a slight uptick in values last month, according to a new report released on Tuesday.
The general trend for house prices in Dubai in 2017 will be one of further gradual softening as the strong US dollar, to which the UAE dirham is pegged, an expected increase in interest rates and slow economic growth deter investors, according to property research company Phidar Advisory.
Average apartment prices in Dubai increased 0.5 per cent last month compared with three months earlier, while villa prices edged up 0.4 per cent over the same period, Phidar said.
Recent price increases have led some property experts in the city to call the bottom of the market.
"Pundits are overlooking the key risks of 2017," said Jesse Downs, Phidar’s managing director. "Market sentiment can always pull the market in an irrational direction, but considering only fundamentals, it is too early to call a market bottom and recovery, there are simply too many factors contributing to uncertainty in 2017."
According to Phidar, apartment rents fell 0.6 per cent in December compared with three months before and villa rents fell 0.8 per cent during the same period.
The report said that the continued fall in rents coupled with small price rises pushed average gross yields down to 7.7 per cent for apartments and 4.6 per cent for villas.
"Residential yield erosion is not sustainable in a year that will experience new risks," Ms Downs added. "Weak investment demand and minimal stimulus will put the onus on market fundamentals. Supply is gradually growing, but net job creation still appears weak – a jobless recovery is not a sustainable recovery."
Phidar’s predictions contradict some of the big names in the Dubai property market who say that Dubai government infrastructure spending ahead of Expo 2020 is likely to boost job numbers and economic growth this year, pushing house prices up.
At the end of last year, property broker Cushman & Wakefield Core said that it had already noted an increase in sale prices in some of Dubai’s lower to mid-market submarkets.
Although prices in prime areas such as Downtown Dubai, Dubai Marina and Palm Jumeirah continue to edge lower, average sales prices in areas such as Dubai Silicon Oasis, Dubai Sports City, International City and Discovery Gardens had risen by 3 to 5 per cent from their lowest levels at the start of 2016, Cushman & Wakefield Core said.
In November, property broker JLL and website Dubizzle predicted that Dubai house prices will start to rise in 2017. And consultancy Knight Frank is predicting "a gradual recovery" in 2017 as the market rebounds and investors regain confidence.