Dubai inflation hits 4.2%, close to five-year peak

Inflation in Dubai rose to 4.2 per cent in April, near its five-year peak of 4.5 per cent, as the Dubai Statistics Authority’s consumer price index registered continued increases in housing costs.

Price growth has hovered above 4 per cent for the past six months, as rent rises across the emirate finally filtered through to headline inflation numbers.

Housing costs were up 7.3 per cent on the previous year, according to official data.

But Dubai rents actually fell by 2 per cent since the start of the year according to the property consultancy CBRE, while brokers and analysts have expected declines over the course of the year.

Standard and Poor’s, the ratings agency, said that sales prices in Dubai could fall by between 10 and 20 per cent in 2015. The property broker JLL expects rents to fall by up to 10 per cent, while Deloitte predicts an average house price fall of 1 to 5 per cent.

Dubai real estate sales volumes have fallen by more than half in April compared to the previous year, in another sign that investor appetite for housing in the emirates has dropped significantly.

The oil price slump has hit investor confidence, while a rising dollar has pushed up the cost of buying a house in Dubai for foreign investors. The dramatic decline of the Russian rouble against world currencies has further dented interest from a traditional investor market.

Central Bank regulations to increase transaction fees and raise borrowing limits on mortgages have also managed to slow the real estate market.

Sampling methods mean that official inflation figures lag behind the latest trends in the housing market. Housing costs in the consumer price index are calculated by looking at a sample of houses across Dubai.

An official from the Statistics Authority Abu Dhabi admitted that the basket of housing used by UAE authorities has not been updated in some time – meaning that it no longer reflected the current composition of houses in the market, and mostly indicated the prices of older housing stock.

Economists estimate that the inflation figure is between three and six months behind current developments in the property market.

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