Castle in the air: the Address Residence Sky View

Dubai’s real estate rebound is puzzling for investors trying to get a grip on the fundamentals of the emirate’s rollercoaster property market, which created millionaires in the boom but sent others bankrupt in the bust.

Each local media report on the latest sale of a new luxury development in the city’s centre sends tongues wagging. As with the pre-financial crisis property boom, everyone suddenly has an opinion on the real estate market.

But the publicity that surrounds a second real estate boom in Dubai is dividing opinion. There are those who reject the headlines of “phenomenal” demand for properties as nothing more than a public relations stunt.

Others predict a second bursting of Dubai’s bubble. Then there are the believers who are snapping up property so as not to miss out.

The confusion is in part down to the part-recovery in prices. “The rebound in the residential property market has been selective,” says Jan Pawel Hasman, vice-president of equity research, at EFG-Hermes, the Arab investment bank. Prices at prime locations with good amenities accelerated the most last year, while increases in less desirable areas were less evident, he adds.

Property prices started to pick up in earnest last year. Apartment prices increased by 19 per cent and house prices rose 24 per cent in 2012, according to Jones Lang LaSalle, the property consultants.

But unlike more developed economies, Dubai does not release regular economic data – forecasts provided by officials are rarely given with context and often do not tally with earlier statements.

Investors look to proxy data, such as passenger traffic through the emirate, which is becoming an ever more popular tourist hub.

The signs look positive: passenger traffic through Dubai airport rose 14.6 per cent to 5.6m in January, up from 4.9m in the same month a year ago.

Many real estate investors go by what they can see and feel. With the city throbbing with activity, the roads jammed and the restaurants overflowing, the emirate feels very much as if it has returned to the heady days of before the financial crisis.

New project launches are also adding to the optimism. Last month, the emirate gave the go-ahead to plans for a $1.6bn island project, home to the world’s largest Ferris wheel.

Alan Robertson, the Dubai-based regional chief executive at Jones Lang LaSalle, the property consultants, says the recovery in residential property prices is broadening beyond the city’s most popular areas.

“As we move into 2013 we see the recovery as more widespread,” says Mr Robertson. “There’s something of a ripple effect coming out from the epicentre – if you’re right out in the desert, things are still pretty quiet. If you’re half a mile in, then things are getting better.”

Emaar Properties, the government-backed developer, is behind some of the most recently launched popular projects. Ahmad Al Matrooshi, managing director, recently spoke of “phenomenal” customer interest in The Address Residence Sky View, a new off-plan development including 532 luxury serviced furnished apartments.

But while Emaar’s sales announcements have prompted much excitement, analysts say few other developers have the ability to raise the financing for such projects.

“Just because Emaar is doing it doesn’t mean the rest of the market is doing it,” says Matthew Green, Dubai-based head of research at CBRE, the real estate investment firm. “They are leveraging their reputation for delivering good products.”

He adds: “In 2006 or 2007, anyone could launch a product. Now that’s just not the case.”

From the glitzy areas of Downtown Dubai and the Palm Jumeirah, it is easy to forget the vast swaths of empty, ghostlike villa complexes outside the city centre.

Gargantuan projects such as The Waterfront, a city planned to be twice the size of Hong Kong, remain little more than boarded up desert lands.

Although house prices are increasing, banks are more cautious these days about lending to developers without a record and buyers are more wary about whom they will buy off-plan from.

The federal government has tried to stem the pace of price acceleration by raising the prospect of a 50 per cent mortgage cap. But analysts point to cash buyers as the main drivers of the fast rise in prices, meaning mortgage caps are unlikely to halt sales.

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