Dubai housing costs soar to Manhattan peaks

DUBAI — An economic rebound has catapulted house prices and rents in Dubai to Manhattan-like peaks, the Gulf emirate's top property website says, forcing increasing numbers of residents to move to its cheaper outskirts or even to consider returning home abroad.

Rents fell 1 per cent in the third quarter after 10 straight quarters of price rises, property consultants CBRE reported this week. But the sustained cost of living surge has driven hundreds of families to relocate to smaller homes on the fringes of the  opulent, high-rise urban canyon that soars out of empty desert.

Research by Dubai website Dubizzle showed rents and house prices in Dubai's prime locations now match those in Manhattan.

"We're talking about $2,000 to $3,000 [a month] for a rental in Manhattan," indicated Ann Boothello, property product marketing manager at Dubizzle, which attracted 2.4 million monthly visitors to its property pages in the third quarter.

"For a one-bedroom apartment in Manhattan it would be about 1.9 million UAE dirham [$517,388], which would be the same for a prime community here," she pointed out.

Dubai rents and house prices are estimated to have increased broadly by some 30 per cent year-on-year, the highest growth rate in the world during the first half of 2014, according to various studies, while in some areas price rises have been much steeper.

Middle- and low-income expatriate families have suffered most from rocketing rents, often including Indians and Pakistanis as well as expatriate Arabs and also some families from affluent Western states.

Construction workers usually live in company accommodations but their families remain in their home countries.

The property market in the city of 2.3 million people rebounded in the last two years after a more than 50 per cent plunge in home prices from their peak in the aftermath of the 2008-09 global economic slowdown.

Expensive safe haven

The oil-rich Gulf sheikhdom's reputation as a solid safe haven in a Middle East increasingly torn by political upheaval and civil war has lured tourists and foreign investors alike.

Costs have kept rising and the emirate jumped to 67th spot among the world's most expensive cities to live in the world compared to the 90th position last year, according to the 2014 Mercer cost of living survey.

The leap in living costs was attributed in part to a significant increase in expatriate rental accommodation costs.

Some rents in the Dubai marina, for example, jumped by more than 50 per cent between August 2013 and February 2014.

"I don't save a thing," said Abdul, a 33-year-old website programmer from Bangalore, India who declined to give his full name. He relocated with his wife last December to Remraam, a new development built by Dubai Properties 30 kilometres inland on the desert periphery of the city.

"We moved out here because it was the cheapest area, but it will probably go up [in price] next year and we will have to move out of here too," added Abdul. "We will probably move back to India next year."

At an annual property exhibition in Dubai this week, state-linked companies announced projects they estimated to be worth billions of dollars combined.  Among the units on display were mansions in central Dubai priced at 75 million dirham each.

"There's been an exceptional amount of interest for these mansions," said Ajay Rajendran, vice chairman of Sobha Group, which is developing the project.

The increase in activity is causing many — including the International Monetary Fund — to worry that the Dubai market is overheating.

A senior government official said on Sunday that rising inflation needs to be controlled to ensure Dubai remains affordable.

The government has introduced some measures like increased transfer rates and mortgage caps to control prices.

These figured in the slight cooling of the market in the third quarter with average residential rents falling by 1 per cent, their first decline since 2012, a CBRE report said.

Developers at the property show have rolled out scale models of latest projects, including Mall of the World, a larger-than-life venture announced in July complete with temperature-controlled high streets, a theme park, hotels and a theatre.

Also on display at the Cityscape show on Sunday were models of mansions for sale at a price of more than $25 million apiece.

Dubai property prices have been on a roller coaster over the past 10 years.

The market began expanding when it was opened to foreigners in 2002 and peaked at record highs in 2008, driven mainly by speculative investments.

Prices took a nosedive in 2009 as finances dried up in the global financial crisis, shedding half the value of the sector.

But a revival in demand propped up values and rents at breakneck speed, stirring fears of another bubble.  

Data shows that sale prices surged by 56 per cent and rents by 41 per cent since August 2012, according to Dana Salbak, senior research analyst at Jones Lang LaSalle (JLL).

"We realise that this was very unsustainable," she said on the sidelines of the annual property show, pointing out a "welcome levelling off" in sale prices and rents in the residential sector in the third quarter of 2014.  

"We see the residential market stabilising. This is a healthy and sustainable level. We welcome prices and rents as they are," she added.

A JLL report put growth in sale prices and rents in the third quarter at just 2 per cent and 1 per cent, respectively.

Knight Frank real estate consultancy also noted that prices and rents have cooled down.

"The growth rate has been weakening," after having entered positive territory in mid-2011, the agency said in an autumn report.