Real estate demand in Dubai, UAE which fell significantly in the first half (H1) of the year continuing into the third quarter, was driven primarily by currency fluctuations, indicating a very low propensity for international real estate investment into the Emirate, a report said.

“Analysis reveals a significant relationship between three key foreign currencies and Dubai real estate prices,” said Jesse Downs, managing director of Phidar Advisory, an advisory firm specializing in real estate in the UAE.

Downs was commenting on the Q3-2015 Mid-Quarter Residential Research Note released by Phidar Advisory.

“Unsurprisingly, the key currencies are the Indian Rupee, Great British Pound and Pakistani Rupee. Changes in Dubai property prices appear linked to fluctuation of these currencies. So, currency trends may help us to understand and forecast local property prices,” she said.

Phidar’s Dubai Real Estate International Demand Index (REIDI) fell significantly in the first half of the year, the report noted.

In H1 2015, the midpoint exchange rates for all currencies included in the REIDI are down against the dollar compared to 2014, except the Chinese Yuan and Hong Kong Dollar. This is not a measure of actual capital flows, but a real time indicator intended to assess the propensity for attracting capital inflows into Dubai real estate.

“Sales volumes for apartments and single family homes were down in July compared to the previous month, but marked a surprising increase compared to July 2014” said Downs. “This is likely due to seasonal travel patterns shifting around the holy month of Ramadan.”

In H1 2015, apartment transaction volumes were up 3.0 per cent compared to the same period in 2014, but transactions for single family homes, also referred to as villas, were down 3.2 per cent compared to H1 2014.

For the communities tracked by Phidar’s House Price Index, transaction volumes were down by 28.2 per cent for apartments and down by 8.6 per cent for single family homes in H1 2015 compared to H1 2014.

Apartment lease rates decreased a nominal 0.4 per cent, while sale prices decreased 2.7 per cent, pushing yields up to 7.4 per cent. Lease rates for single family homes decreased 1.3 per cent and sale prices decreased 2.6 per cent, which pushed yields up to 4.8 per cent.

“The increase in yield is a positive and necessary trend in Dubai real estate,” said Downs.

“Especially in the context of global volatility, this is part of a healthy and necessary, market correction,” she concluded.  – TradeArabia News Service