Commercial property prices double

Dubai: Hot property sales in Emirates Hills, Barsha and Mirdiff helped push land prices up an average of 64 per cent last year, according to a price index by the Dubai Land Department.

In addition, the price-per-square foot for built commercial property in Dubai doubled last year, and nearly one in 10 unrestricted properties in Dubai changed hands in a sales transaction.

The figures confirm that it was a landmark year for the local real estate market as demand pushed prices to unprecedented levels.

Local economists say some caution must be thrown at the steep hike in the average price per square foot, which may have been skewed by a few select land deals at high-profile locations.

For example, according to the index, built commercial property rose one per cent in 2005, but then jumped 100 per cent in 2006.

Additionally, some 360 transactions registered in 2006, or about 13 per cent of the total, actually took place in 2004 and 2005, according to the Land Department.

Shift

Mohammad Thani, development and marketing director for the Dubai Land Department, said the figures suggest investors shied away from residential property last year, which in years past was the hottest market, and instead began concentrating on office buildings.

"In 2004, people were looking for vacant residential land. In 2005, they were looking for residential buildings to purchase. In 2006, we found out that investors are now looking for built commercial buildings because the return on investment is faster," Thani told Gulf News.

Ryan Mahoney, managing director of Better Homes, a real estate consultancy, said strong, sustained demand for rental units is the reason why sale prices have gone up.

Mahoney believes that Dubai has become a top destination for multinational corporations looking to establish a base for doing business in the Middle East and the subcontinent.

Spike

"Rental rates have just spiked up to unbelievable levels," he said. "A few years ago, people were paying Dh70 to Dh80 a square foot for office space on Shaikh Zayed Road. Today, it's going for Dh250 and Dh300 a square foot."

With the recent rental cap at seven per cent per year in place, it remains to be seen what effect it will have on real estate prices.

Overall, the average land transaction has risen over the past three years. In 2004, the average purchase price for a property was Dh4.3 million, but that rose swiftly to Dh6.4 million in 2005 and jumped again to Dh7.3 million last year.

The department's year-end review found that land sales grew 18 per cent to reach Dh18.64 billion mark overall with the highest volume of sales recorded in Emirates Hills, Barsha and Mirdiff.

The value of mortgages also rose to 170 per cent above the year before, to Dh40.59 billion.