Property Prices Rise But Still Lower Over 2008

A widely watched index of Dubai property prices shows home values in the city-state edged higher for the first time since the market plunged, but are still down nearly half from a year ago.

The tally out Tuesday by real estate consultancy Colliers International indicates property prices in the third quarter rose 7 percent over the preceding quarter. That is the first increase this year.

Colliers regional director Ian Albert cautioned that the rise doesn't necessarily mean the market has hit bottom.

"It's too early to say," he said. "One quarter does not make a trend."

Even with the recent gains, Dubai home prices remain 47 percent below their level at the peak of the market just a year ago.

Many of the houses and apartments were bought as vacation homes and investment properties by foreigners from Europe, Asia and the Middle East.

Values plunged dramatically beginning late last year as the financial crisis dried up financing sources and scared away the overseas speculators that fueled the city's boom.

The rapid drop has erased more than two years of gains, leaving homes now worth about what they were in the spring of 2007.

Albert attributed the latest gains largely to the increased availability of mortgages and a growing perception of job security among some foreign workers _ particularly those not tied to the real estate sector, a major employer during the boom years.

As many as nine out of 10 Dubai residents are foreigners whose residency permits are usually contingent on continued employment in the emirate.

Colliers bases its index on mortgage data from local and international lenders. It measures prices in parts of Dubai where foreigners have been allowed to buy since the market was opened in 2002. Those areas were largely responsible for Dubai's real estate boom.

The consultancy said the going rate for Dubai residential property now averages 1,016 dirhams, or about $277, per square foot.

Despite the recent bump in prices, Albert said home values will likely slide further over the coming year as a glut of new properties nearing completion become available.

"It's going to happen," he said. "Prices will soften next year."