The flow of capital into the real estate market of Dubai, UAE, has continued in the first quarter of 2015 against a backdrop of low interest rates globally and relatively volatile financial markets regionally, a report said.

Demand for institutional quality assets across Dubai and other key GCC centres has been rising, assisted by numerous factors, including the fact that yields remain relatively high in context of other global cities, added the Dubai Real Estate Investment Report released by Knight Frank, a leading global property consultancy.

Over the past 18 months, the spread between all-property yields and the Dubai government bond has widened beyond its long-run average – almost entirely due to the receding “risk-free” rate, the report said.

“While the Federal Reserve has indicated that it is likely to push up interest rates – which in turn should help to close the gap – our suspicion is that prime all-property yields will also edge down,” Knight Frank noted in the report.

“This is predicated on the fact that historically there has been a reasonable correlation between changes in prime all-property yields and GDP (gross domestic product) growth in Dubai – which forecasters have projected, will accelerate in 2015. In other words, faster economic growth should lead to further hardening of yields in the near-term,” it added.

Highlights:

•    Continued strong demand for real estate from institutional, sovereign and established investors;

•    Dubai all-property yields have seen little change over the past year, though over the previous four years there has been a consistent downward trend;

•    The RICS (Royal Institution of Chartered Surveyors) reported that property investor sentiment stabilised in Q1 2015. Consistent with this, at 7.1 per cent, prime all-property yields for Dubai remained flat over the same period;

•    Developed property markets such as those of the UK and Europe should continue to see strong levels of demand from GCC investors.

Knight Frank’s Middle East Capital Tracker – which monitors professional real estate investors’ favoured global destinations – shows that the UK remains a firm favourite for almost 60 per cent of investors from the region. The GCC itself, as well as Continental Europe, also rank highly. – TradeArabia News Service