However, when the performance of Dubai realty sector is compared to the last year, 2013s first quarter saw hike in property prices in almost all property categories in Dubai and from high-end to secondary areas. The activity and the revival of end users confidence have also urged developers to come into action that leads to revitalization of numerous stalled property projects in Dubai. Seeing all this, it is believed that the “less intense” version of mortgage cap legislation may be implemented in the near future just to see whether it will result in enticing cash buyers or not. Despite the point, whether the mortgage cap will be implemented or not, it is clear that renewed investors confidence has led to a robust growth in nearly all property sectors in Dubai from the second half of 2012. However, the most obvious impact is visible in residential property sector of Dubai.

According to Cluttons, from the second half of 2012 till the end of first quarter of 2013, average sale prices for high end villas rose by 8.9 percent and middle range villa prices have increased by 14.9 percent during this period, while low budget villas have witnessed the price hike of 20.2 percent. The same trend has been witnessed in the apartments segment, where average prices for both high and middle range apartments rose by 10 percent, while the low budget apartments registered price growth of 14.6 percent during the same period.

Along with increase in activity of sales market, Dubai rental market has also experienced substantial growth. High end villas registered average rental growth of 9.7 percent, the middle range villa segment experienced average rental price rise of 6.2 percent and lower budget villas recorded an average rental value growth of 19.6 percent. Similar trend is followed by apartment sector, where high end villas recorded average rental growth of 6.4 percent, middle range apartments showed rental price growth of 7.7 percent and the lower budget apartments registered the sharpest rise in average rental prices with a rise of 12.7 percent.

Experts state that rising sales prices attract general property buyers, who were holding back their investments since long, while the rising rental values tend to drive tenants towards middle or lower budget accommodation options, which will lead to a wider recovery in Dubai real estate sector, with even more secondary locations enjoying the increased activity. Increase in prices and activity is marked as a boom in Dubai realty market and everyone related to the sector welcomes the steps taken by Dubai government and real estate officials to make this sector buoyant once again.

The claim is supported by concrete statistics. The average increase in the asking price of all apartments in Q4 2102 was 3 % for apartments and 4 % for the villas. Dubai Marina and Downtown Dubai apartments marked a bigger increase of 22% and 21%, respectively.

The situation with a sales price in Dubai for Q1 2013 was even more impressive. In just Q1 of the current year sales prices have increased by 5% for villas and 12 % for apartments. As a result, the annual growth of the sales prices in the region reached the massive 24% and 27% respectively. But something that topped this record as well was the discovery garden apartments where the jump went as high as 30% in the sale price.

The lower-budget-end of the villa market also registered the sharpest rise of 20.2% in their values. The report said this trend has been mirrored in the apartment segment, where both high and mid-range apartments have recorded an average price increase of 10% each, while lower-budget apartment units registered a price growth of 14.6% over the same period.

Apartment rates and demand in Dubai are expected to grow even more with the ever growing population. At the moment, the demand for the apartments in posh areas of Dubai is at its peak as compared to the past years. Not just the apartments, there is a continuous increase in construction, which is surprising because they over exceed the demand. But it is thought that this is pre-emptive thinking on the Dubai governments and constructors part to be ready for the rapid influx of people demanding apartments as the population of Dubai is expected to grow during the coming few years.

Not just residential quarters, there was an increasing demand for commercial areas during Q1 of 2013. According to sources, the office leasing has experienced an increase in both annual and quarterly level of 8% and 12% respectively. This seems to be a truly constructive and helpful upsurge for the development of economy which is expected to be more substantial and concrete.

To make the commercial area sales even more lucrative many companies and landlords are offering attractive deals by giving fully fitted office space and bigger floors. This tilt towards the buying of commercial space is also because investors are encouraged by the improved state of internal infrastructure.

According to Dubai real estate analysts at Bayut.com a positive outlook based on the current progressive figures, can be predicted as Dubai's strengthening property market was a reflection of the UAE's improving economic performance. The realtors seem to be buoyed and excited with the renewed confidence in Dubai's residential market and increased activity in the sector. Although many thought hat last year was a temporary boost in the Dubai realty market, but it has been proved wrong with the hiking demand popularity.

Dubai is well-known for its state of the art real estate developments. Dubai is a home to various skyscrapers and it seems to be vying with the whole world in the run of building skyscrapers based on innovative ideas and architectural designs. Dubai has always amazed the world for introducing contemporized real estate projects. The construction of Palm Jumeirah and The World in Dubai has delivered an idea to the world that real estate developments can transcend the boundaries of land. Dubai has shown the world that seas can well be managed for enormous real estate developments. This is one of the major reasons that Dubai is an equal attraction for investors, buyers, residents and occupiers. For its rapid developments in realty sector, Dubai is also regarded as a tourist hub and it manages and hosts large number of tourists from around the world.

Owing to its increased attention towards the real estate developments, it seems that Dubai is no more relying on its oil reserves for upholding the economic cycle of the city. News for real estate launches in Dubai often hit the media. Recently Damac, a Dubai based property developer has launched the development of $1 billion project in Downtown Dubai, comprising of hotel and branded serviced apartments. Damac is also expected to commence a new project at Dubai Maritime City. In similitude, an AED 1.2 billion luxury residential development has also been launched recently by Meydan and G&Co in Dubai. Another development by the name of Azure Residencies on The Palm for Dh2.3 million to Dh4.2 million was unveiled by Dubais Nakheel in February 2013. The rapid launches of major real estate developments are evident that Dubais insatiable greed for real estate developments is expected to gain magnitude, with the provision of more units to the investors and prospective residents.

The reasons for increased magnitude of realty developments in Dubai are the bid for hosting World Expo 2020 and increased interest of investors in Dubais realty market. If hosted by Dubai, the World Expo would be featuring spectacular exhibition, business gatherings and cultures. Secondly, promising returns outlook of Dubai property are also enticing investors to release their money in Dubai realty market. According to a report, apartments for sale in Dubai Marina and Jumeirah Lake towers record 8-10% spikes in prices. A large number of female investors have also delved in Dubais realty market, which according to a report make up 23% of the property market, with an estimated spend of 13.3 billion in Dubai property.

Lets discuss few key trends, which are likely to affect Dubai real estate market this year.

More Choices as Supply Levels Remain Significant

With a number of major property projects scheduled to start this year, investors, buyers and tenants will have more investment options in 2013. At the same time, with significant levels of supply inflow in both residential and commercial sectors, the market is expected to increase in competitiveness. More competitiveness leads to a wide array of choices for investors, buyers and tenants, out of which they can pick the best one according to their budget.

Return of Investors Confidence

Stellar performance and remarkable recovery of Dubai real estate sector in 2012 supported by related factors, such as positive economic growth, increased employment, improved sales and rental price performance and Dubais safe haven status, has elevated investors confidence. In addition to that, the announcement of many real estate projects also pronounces this increased market confidence. With the help of a number of reforms, the UAE government and the officials associated with Dubai property market are keen to create a more stable market in 2013,.

Introduction of Green Buildings

Investors and developers, all over the world, are aware that nature-friendly construction and green buildings have superior financial performance and are much preferred over ordinary buildings. Despite the increased awareness about importance of sustainable buildings in Dubai realty market, only few LEED certified projects are introduced in the market. It is planned that more green regulations will be introduced in Dubai realty market in 2013. However, seeing the number of sustainable property projects introduced in 2012, it can be said that sustainability is not likely to be a real game changer in this year at least.

High Quality, Better Management

As the flight to quality property projects took an upturn in 2012, there will be an emphasis on high quality projects across the region in 2013. At the end, quality of developments will distinguish well-performing developments from poor ones, leaving Dubai an increasingly two-tiered market. Along with high quality, better management will be another deciding factor to determine the developments that are preferred over others. Better management is a key to attract more tenants towards high quality villas and apartments for rent in Dubai and soon, there will be shift in emphasis from the management of the individual developments to the public areas management.

Overall, 2013 will witness an increase in confidence in Dubai real estate market. The market will experience a broader based recovery, with all areas seeing some pockets of sales and rental growth in 2013.

Following are some of the factors supporting the optimistic approach.

Major Infrastructure Projects

To give a boost to the UAE real estate sector, the government has introduced different reforms. A number of major infrastructure projects are also scheduled to begin later in 2013. At the same time, the UAE real estate sector is also expected to benefit from increased economic activity between the UAE and other countries. All of these steps are being taken for a rapid recovery and robust growth of real estate sector in 2014. The list of major on-going infrastructure projects is long and it includes a replica of Taj Mahal (four times bigger than the original), the worlds biggest Ferris wheel, an array of gigantic mega-malls and a series of world class hotels. All these extravagant projects aim to boost tourism in the region directly and real estate sector indirectly.

Upward Property Prices and High Demand

According to the 2012 facts and figures, Dubai real estate sector started showing promising signs of recovery from the second quarter, with upward prices in both residential and commercial sectors. The demand is also growing with the introduction of new concepts in Dubai property construction sector. Investors do not go merely after any ordinary Dubai property for sale but they prefer investing in properties equipped with modern intrinsic features that are based on revolutionary concepts.

Seeing the trends, most of the property developers are turning their attention to high quality and green construction concepts to get investors attention and to make more profit. Sustainable materials are used and energy audits are conducted to make developments more energy efficient and to cut the costs. These innovations attract and bring more and more international property buyers to invest in Dubai real estate sector.

More Cash Buyers

2012 data discloses that Dubais property market is rebounding and it also reveals that more and more buyers paid cash for property transactions and avoided mortgages in as many as 70 percent of Dubai property purchases. Real estate experts believe that the widespread use of cash limits the chances of another real estate bubble like the one that erupted back in 2008. The UAE Central Bank proposed a mortgage limit for the credit buyers but seeing the previous transactions, it can be said that it would not affect cash buyers proportion. Cash payment will also help to stabilize Dubai property for sale prices in the long run as cash buyers will be more aggressive in negotiating final prices.

Seeing these three pointers and the performance of Dubai real estate sector in 2012, it can be claimed that 2013 will prove to be a year of more activity and rapid recovery for Dubais realty market.

It is believed that the addition of new property units in 2012 brought down the rents of studio, 1 and 2-bedroom apartments in Abu Dhabi. With a 12% decline in rents, smaller and less posh apartments in Abu Dhabi remained an attractive accommodation option for expatriates in 2012. The streak of good news for tenants goes on as an addition of 17,000 new residential units in 2013 is likely to bring the rents in Abu Dhabi further down. However, the rents of the bigger apartments in prime locations will experience the similar high demand and rents in 2013.

According to Bayut.com, Khalifa City A, Al Raha Beach and Al Reem Island remained the top performing communities in Abu Dhabi during Q3 and Q4 of 2012. These 3 locations held the top 3 ranks throughout the years second half with a slight fluctuation. Most of the rental inquires made on Bayut.com were regarding the apartment units in the mentioned locations, which earned them increased Popularity Index points and higher ranks on search trends of Bayut.com. It has been noted that the popularity and demand of apartments for rent in Al Reem Island, Al Raha Beach and Khalifa City A continues in 2013 as well.

Abu Dhabi rental properties are known for their consistent demand and performance. The notable apartment projects of Al Reem Island have also been the same since November 2012. With Marina Square on the top, Shams Gate District on the second, and First Gulf Bank Tower on the third, Al Reem Island luxury apartments enjoy stable demand and increasing rents. The top 3 performing apartment projects of Al Raha Beach in Q4 of 2012, as per Bayut.coms finding, were Al Bandar, Al Muneera and Al Zeina. During Q4 2012, the notable projects of Khalifa City A remained Al Matara Compound, Al Dahre Compound, l Shamsi Compound and Al Amri Compound.

With increased construction activity observed in Abu Dhabi and widening employment opportunity in the corporate and construction sector, the UAEs capital looks strong to become the new trade and business hub in the region. The residential units and corporate projects in Abu Dhabi have a look and feel of their own, which is both modern and high in quality. The developers and real estate brokers of Abu Dhabi property believe that the state has a strong real estate future. With the construction speed, status and scale of the on-going real estate developments in Abu Dhabi, the investors can be sure of making some very lucrative investments.

According to a report, Dubai residential property index of some reputable company climbed to 13.46% in 2012 compared to a decline of 1.8% recorded one year ago. Moreover, data reveals both employment level and population in the UAE would be up by 2.5-3% in 2013 compared to previous year. This shows Dubai property market is anticipated to become one of the strongest real estate markets in the world in 2013. However, some experts believe against it and they suspect the growth to slow down. This is because of the following reasons:

1: Mortgage Caps

UAE government has capped the mortgage lending to regulate Dubai property market, slowdown of activities and lessen the reliance on home finances. According to this regulation, foreigners would not be able to borrower more than 50% of propertys value and UAE locals would not be able to borrow more than 70% of propertys value. This regulation is likely to implement by the mid of 2013.

Experts believe this regulation has slowed down real estate activities even before its implementation. A great number of investors who previously were thinking of buying property on mortgage now cant afford them and they are finding living on rent as the economical solution. Many investors have put their property purchasing plan on hold which would definitely reduce the demand of properties in Dubai this year. Low buying would definitely play a role in slowing down of growth of the sector in 2013.

2: Additional Supply

Though 2012 remained a remarkable year for Dubai real estate sector yet the rapid recovery also brought the news of resuming construction work of various stalled projects in the emirate. Announcements of several mega projects such as five new theme parks in Jebel Ali, re-launch of Business Bay Canal Construction project and construction of Mohammed Bin Rashid City were made. Moreover, government has announced the additional supply of less than 50,000 units coming to the market by the end of 2015.

2013 is expected to bring broader based recovery in Dubai real estate sector. However, this is not possible with such large property supply constantly adding to the market. Though demand is rising but it would continue to balance additional supply in posh areas of Dubai Hence, the market will pursue growth but not only the growth rate would be slower but recovery would also continue its fragmented trend in the market

If government takes proper steps to regulate the market without harming its sentiment, 2013 can prove to the year of glory for Dubai real estate sector. It can reverse its fortune and bring it back to its original position.

Property prices which had been fallen by around 60% in more than 4 years of property slump showed remarkable recovery during the year. The performance data highlights that price of villas and apartments in Dubai increased by almost 20% and 7% respectively in compared to previous year. This rapid recovery helped experts to predict much better times ahead in 2013. They believe the strong economic fundamentals, population growth; wider availability of mortgages as well as restored investor confidence would help the sector to make a hearty comeback in 2013.

Dubai real estate experts though expect bigger and better recovery in 2013 backed by many reasons for optimism yet they also have concerns about re-inflating property bubble due to some newly emerging risks. They believe that 2013 can easily mark the fortune of Dubai real estate sector opposite to their predictions, if cautious approach is not adopted. They believe that two factor given below can hamper the rapid recovery of Dubai property sector.

1: Property Oversupply

Some of the recent mega Dubai property projects announced, if on one hand indicate the growth of the sector then on the other hand they have also led the experts to think of another property bubble ahead. Moreover, supply of under 50,000 additional units has been scheduled to enter to the market in next three years.

The fact is Dubai is already under the pressure of oversupply and it has only absorbed this pressure in established localities of Dubai. In many or you can say all the secondary locations in Dubai, prices and rents are still struggling hard to break their status quo and move towards growth. Additional supply planned in secondary areas can further decrease the rents or prices, which if not controlled can also affect prices and rents in posh areas of Dubai.

2: Over Confidence

Reasonable confidence returning on Dubai real estate market is a much positive sign for the growth of the sector but overconfidence on the sector can drastically affect its sustainable recovery expected in 2013. Experts say that those investors who have been adopting wait and see approach to invest in Dubai real estate have showed early exuberance which can affect negatively on the future recovery of the sector.

The overconfidence is leading investors to return to off-plan sales activity in Dubai. A lot of investors are not being cautious about taking risks with incomplete assets and this is exactly the mistake of the past. The confidence running ahead of end user demand is no less than a red flag for the market and it can badly affect sustainable growth of the sector in 2013.

If stakeholders of Dubai real estate play their roles well and take proper cautions, not only the sector can recover in 2013 but it can also be brought back to its original highs.

Experts if on one hand were happy to see activities of mortgage market picking up gain then on the other hand they were quite worried that if this continues Dubai real estate sector can face another property bubble. Experts believe that Dubai realty market is now maturing and any mistake of the past can again collapse it.

New Mortgage Caps

The Central Bank of the UAE, in order to mitigate the risk of re-inflating property bubble, ordered banks by sending a circular on 31st Dec to restrict real estate lending till the implementation of new mortgage cap regulation. It highlighted in the circular that first-time expatriates in the UAE cannot take mortgage of more than 50% of the value of property. For second and subsequent purchases, the circular highlighted a limit of 40%.

On the other hand, Central Bank for the Emiratis proposed a mortgage of not more than 70% of value of the property, for first time home finance purchases. For second and subsequent purchases, it highlighted a limit of 60%.

How Can It Benefit Property Market?

1: Remove Speculation - The new mortgage cap regulation is expected to bring a big change in Dubai property market. Previously Dubai property sector collapsed when Dubai governmental started offering real estate finances to expatriates without any restriction. There was huge speculation in the market and as a result buyers lost hopes from their investments. They had no intention of holding property for long term investment. This regulation on implementation would help the market recover at a sustainable level and remove speculation from the market.

2: No Impact on Demand - Those who say this restriction would decrease the property demand in Dubai are wrong. This is because out of the total realty transactions closed in Dubai during 2012, around 80% have been made through cash. This shows that despite mortgages facilitate property buyers, majority of buyers still prefer to buy Dubai property on cash. This shows that implementation of this regulation would not impact largely on demand of property in Dubai.

3: Increase Rental Market Interest - New mortgage cap regulation is also expected to drastically increase the demand of rental properties in Dubai. This is because the mortgage caps would prevent buyers to rely on mortgages and hence they would prefer living on rents in Dubai. Experts believe the hesitation of buyers to secure mortgage would double the rental market interest in Dubai.

The Bottom Line

Though banks will have to compromise on their profits yet this regulation makes the perfect sense to regulate mortgage market in Dubai. It would protect landlords as well as financial institutions by promoting sensible level of lending in the market. Though this regulation would slow the property market activities but it would eliminate the risk of re-inflating property bubble in Dubai.

The outstanding capital growth, restored confidence and property demand from foreigners recorded during 2012 has spread a general wave of optimism about the performance of sector in 2013. According to experts, 2013 would reverse the fortune for Dubai real estate because it will emerge as one of the strongest performing sectors of the world in next year. According to a predication UAE real estate sector would be the third best performing sector after Moscow and Miami in the list of total 14 countries of the world.

The rising inquiry levels from property investors of the UK, India and Iran due to their high-net worth individuals looking for double-digit annual returns on Dubai property investment would pay a key role in strengthening Dubai realty market in 2013. Though supply of 36,000 new units is expected to add to the market in 2013-2015 yet this supply would add in stages in secondary areas of Dubai, This would prevent the price and rents to decelerate in the next year. Moreover, the rising demand on account of restored confidence and easy mortgages is expected to offset the pressure of new supply in 2013.

Dubai government has learnt from its mistakes and this time it is focusing on developing real estate slowly and gradually instead of developing too much real estate too quickly. Over the past 12 months, prices in posh areas of Dubai rose by 13% on average year on year. During the same period price of property in some projects i.e. The Greens and Downtown Dubai have shown tremendous growth of 20% year on year. This shows investors who would be cautions and concentrate on where to invest and in which property projects to invest can build significant wealth from Dubai realty investment in 2013.

In a nut shell, 2012 ends on an excellent note for Dubai real estate sector due to drastic increase in number of realty transactions, increase in mortgage lending, rising transparency levels and restored investors confidence. This spectacular performance of the sector during the year is leading experts to predict that 2013 would be the year which would actually reverse the fortune of the sector and help it to gain its original position.