House prices in Dubai, hit hard by the global downturn, registered a second quarterly rise in the fourth quarter but fell in December as the emirate's debt crisis dampened sentiment, according to a report by Colliers International.

The residential house prices in Dubai remained stable during the fourth quarter of 2009, rising close to one per cent above the third quarter’s results, said Colliers in its 'Dubai House Price Index.'

The Index, compiled using actual mortgage transaction data from a consortium of financial institutions, indicates a leveling of property values in Q4 following the seven per cent increase of the previous quarter.

Over the 12 months of 2009 the Index also reported a total annual variance of just 1.7 basis points, further underlining a stabilisation trend.

“We anticipate price fluctuations will become less pronounced as the market matures, providing early indications that Dubai house price values are getting closer to underlying values,” said Ian Albert, regional director, Colliers International.

In year-on-year terms, overall house price values declined 42 per cent between the fourth quarter of 2008 and 2009, placing Dubai property prices at the same levels as second quarter of 2007.

When compared to previous quarters the precipitous freefall of overall annual prices also appears to show signs of abating.

The volume of market transactions declined 15 per cent during the fourth quarter compared to the third quarter, which Colliers attributes more to the anticipated seasonal slowdown than the well publicised Dubai debt issues.

'December, representing one third of the quarter, was influenced by the anticipated seasonal slowdown and by the well publicised Dubai debt issues,' the report said.

Dubai rocked the financial world on November 25 when it said it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring.

“Anecdotally we have learnt that the announcement of Dubai World debt restructuring has influenced purchaser sentiment, but in the context of seasonal adjustment it is difficult to assess to what extent at this stage,” pointed out Albert.

“We now seem to have reached the point where the market is trying to find its natural equilibrium. While we have tracked marginal variations in the performance and prices of property types, it remains to be seen how the market will react to further news of Dubai World’s debt restructure as well as the banks’ end-year results,” he added.

According to Colliers, the emirate was likely to see marginal fluctuations in the performance of villa, townhouse and apartment sectors as the market continues to cope with a number of influencing factors.-Reuters and TradeArabia News Service