Dubai: Dubai’s property market which returned to growth earlier this year, continues its upward climb with the villa market continuing to outperform the apartment sector in the third quarter, most analysts and reports say.

The recent figures from Dubai Economic Department (DED) state that Dh22 billion of foreign investment has been injected into the real estate sector in the first half of 2012 alone, with Indian, Pakistani, Iranian and Russian investors dominating the scene.

“The Dubai residential market will remain fragmented during the final quarter and into 2013 with mixed patterns of growth and decline still apparent depending on the location and product,” says Matthew Green, Head of Research & Consultancy, UAE Middle East Research, CBRE. “Rental rates now appear to be fixed on an upward curve in the majority of sub-markets although for many districts and secondary locations, these increases remain modest at this stage.”

A surprising number of transactions were recorded during the normally quiet summer months this year, totalling Dh2 billion.

Prime residential buildings in well-established locations continue to see improved performance, but secondary locations are still suffering from rental and pricing declines as tenants relocate to new high quality projects.

Abu Dhabi market

However, Abu Dhabi’s residential market continued to see sale price and rent declines. Since the market peak in 2008, the average prime rent for a two-bedroom apartment in Abu Dhabi has fallen in excess of 48 per cent.

The Executive Council has announced a new regulation requiring all employees of the Abu Dhabi Government and its affiliated entities to live within the Emirate. “This regulation, expected to take effect from late 2013, could strengthen the negotiating position of landlords and help stabilise rentals in the residential market,” said a report by Jones Lang LaSalle.

“Market sentiment is definitely improving and both Dubai and Abu Dhabi remain major drivers in the regional real estate market, but we are continuing to move away from one holistic model,” Alan Robertson, CEO of Jones Lang LaSalle, Middle East & North Africa, said.

“As the market continues to mature we will see more divergence. Well-managed, high quality assets in prime locations will continue to perform whilst those in secondary locations will need to be ever more creative to attract and retain tenants who now have an ever more choice and are moving with their feet to source and find the best deals available,” he added.

Within a general atmosphere of improving investor confidence and an optimistic business outlook across the UAE, Dubai remains the more robust market, seeing steady rental and price growth for prime assets in the hotel, retail and residential sectors, as per the latest JLL report. Whereas, Abu Dhabi remains somewhat behind Dubai in terms of the timing of recovery, with most sectors of the market in Abu Dhabi remaining tenant favourable, seeing on-going price and rent declines.

“In Dubai, most areas have seen a pick-up according to our dataset, but a few areas that are more inland have seen declines,” said a latest report by National Bank of Abu Dhabi.

“Meanwhile, rents in Abu Dhabi continue to soften. Average rent in Abu Dhabi in one selected area was down by about -11per cent in January-September. This is essentially due to the timing of properties that are being introduced. A number of new Abu Dhabi developments were delivered recently causing the Abu Dhabi rent premium versus Dubai to contract. A self-adjustment mechanism has been that Abu Dhabi has attracted back some of the people who used to live in Dubai,” NBAD said.

Robertson said: “In terms of market specifics, it’s a very fragmented picture. Dubai is generally ahead of the curve as rents are finally starting to pick up whilst indicators suggest Abu Dhabi has yet to bottom out. In terms of sectors, retail remains a driving force with significant opportunities in both emirates, and on investment and development fronts, we expect to see more major deals announced in the weeks and months ahead, reflecting the improved economic climate.”