Turmoil in the Middle East and rising rental rates are driving Dubai home prices to pre-crash levels, according to new report from Cluttons, the property consultancy.
Home values increased 30.6 percent in the first six months of 2013. Villas prices were up 21 percent in the second quarter alone, while apartment values rose 25.1 percent, the firm reports.
Overall property prices are 36.9 per cent higher than they were at their 2009 market low, thanks to the surge in recent months. But prices are still 31 percent below the market peak established in the third quarter of 2008.
"The resounding success of Dubai residential so far this year should not come as a surprise given the magnitude of the correction recorded during the bottom of the market, said Steve Morgan, the head of Cluttons in the Middle East (and a WPC News columnist). "We are still far off the previous peak, when growth was far more unsustainable."
Fast-rising rents for quality properties is one factor spurring sales, Clutton says. The average rent rose 11.3 per cent from January to June. Dubai is also benefitting from a shift of money out of countries facing political strife.
The Cluttons numbers are in line with other recent reports tracking the increase in Dubai prices. Earlier this month Knight Frank reported Dubai's luxury home prices were up 21.6 percent in the last year, the second-best performing market in the consultancy's prime global cities index.
But the rapid rise in prices have also raised concerns about another boom-bust cycle. Increases have been largely focused on the top projects. And there are thousands of apartments and villas scheduled for construction in the next few years.
"It is too early to speak of a bubble, but should price increases continue to take place at this pace, action will need to be taken to prevent a bubble," Harald Finger, the International Monetary Fund mission chief to the United Arab Emirates said recently.
Dubai's government has taken steps to curb speculation in the market and discussed caps on mortgages.
But Cluttons says the recent activity s based on organic growth in the market, not speculators.
"The acceleration in residential capital values this year has been underpinned by robust levels of job creation and a rising population, rather than being fuelled by 'fly-buy' dealers, as was the case in the past," Mr. Morgan said.