Business & Finance Group - Real Estate - Dubai: Dubai property prices rose two per cent during the first quarter over same period last year, the first annual increase since the downturn hit the property sector in the emirate, according to Colliers International.

House prices, according to the UK-based real estate consultancy, also recorded a four per cent increase during January to March since fourth quarter of last year, the third consecutive quarterly increase. House prices are now at par with 2007 levels, suggesting the market has reached underlying value.

House prices during the first quarter rose to approximately Dh1,061 per square foot from Dh1,037 a year earlier, according to Colliers.

These positive developments show that confidence in Dubai’s residential property market appears to be returning as Colliers Q1 2010 House Price Index increased by 4 basis points from 115 points in fourth quarter of 2009 to 119 points in the first quarter.

While the results offer positive news for Dubai’s property market, the global real estate consultancy remains cautious about the year ahead.

“Despite the stability that the market appears to have achieved, a number of concerns remain. There will be significant oversupply in the market by the end of the year so it is anticipated the index will experience fluctuations in value going forward. What will be important to watch is how much of that supply matches the end-user demand for community-oriented developments,” said Ian Albert, Regional Director at Colliers International.

Colliers estimates that 41,000 residential units (both freehold and non-freehold) will enter the market by the end of 2010, mostly positioned in the low to mid income segments.

With demand not expected to match the growth in supply, Colliers said, “The additional stock is likely to create downward pressure on property prices. However, it remains unclear whether the future supply will have a negative impact on established projects, which are typically more resilient to market conditions.

Concerns over banks’ end-year results and the availability of liquidity reported at the beginning of year have somewhat abated with several financial institutions reducing their interest rates and increasing their loan-to-value (LTV) ratio. The LTV of leading mortgage providers has increased to 75-90 per cent with interest rates varying between 6.5 per cent and 8.5 per cent.