Business & Money | Thursday 25 June, 2015 2:00 am |

With the release of the First Quarter 2015 Dubai Real Estate Market report, ValuStrat publically introduced their comprehensive residential price index for Dubai–the ValuStrat Price Index (VPI).
(http://www.valustrat.com/valustrat-q1-2015-dubai-real-estate-research/)

ValuStrat recognised the importance of constructing a representative monthly price index that captures ‘real-time’ pricing and offers an alternative to official transactional data which can be lagging in nature.

‘…When we analyse transactional data in Dubai, one of the challenges is that the information is based upon pricing that may have been agreed months or even years before. In a fast changing property market this means that it may already be out of date. Additionally, it is not always possible to filter thestatistics into useable components… Or we may just find the sample sizesare too small to extract valid findings from …’ explains Haider Tuaima – ValuStrat’s Research Manager.

The ValuStrat Price Index is a proprietary system designed to accurately measure the monthly price performance of arepresentative sample of residential properties in Dubai, effectively ‘marking to market’ the Dubai residential property sector every 4 weeks.

TheVPI model involves determining opinions of value fora pre-defined sample comprising of a fixed basket of villas located in 10 areas as well as apartments located in 16 areas throughout Dubai. The locations are determined by calculating the Mode (highest frequency) of transactions for each area within a citywide cleansed database of 24,500 records over a two year period. This insures a representative sample covering the most influential locations in Dubai in terms of market activity. The villas and apartments are actual units with clearly defined specifications, such as floor area, number of bedrooms, views, height and so on. Specific weights are then applied based on asset class, quality and location. ValuStrat’s extensive ‘on the ground’ valuation experience, significant database of comparable evidence and primary research all contribute to ensure that the VPI offers accurate market results.

‘… In case of a transactional price index, the number of transactions in a particular area would form the weight of the area in the index, and this weight would keep changing period after period. Whereas, in the VPI, we maintain constant weights across all periods, thus freeing it from the bias of changing weights, where one period may be dominated by transactions in prime property areas, while another may have much lower weight for such areas. Moreover, there are cases where individual or sub-sector price changes may not be reflected in total transactions because there are too few transactions in those areas. This issue is also mitigated by basing the VPI on opinion of value of a recurring basket of properties, rather than actual transactions...’ Tuaima adds.

The VPI methodology is not restricted to analysing the residential market, it can also be adapted to cater for other asset classes, such as retail and offices. In due course ValuStrat plans to roll-out the VPI to their other office locations in Riyadh, Jeddah and Doha, thus adding increased market information in those areas as well.

ValuStrat’s real estate market review for Q1 2015 concluded that since the ValuStrat Price Index began tracking in January 2014, Dubai residential prices have witnessed a rise and fall of values. By benchmarking the index from January 2014 at 100 points, it was found that values peaked in June 2014 at 113 points, then returned to 100 points in March 2015, displaying a maturing market price correction within a span of just over a year.As such,residential pricesappear to be broadly back to where they were at the start of 2014. High-end apartment locations saw most of the value correction; namely the Palm Jumeirah, JBR, and Downtown Dubai.

It will be interesting to see how the VPI performs over the remainder of the year in light of the current evidence of reduced transactions. The expected trend is towards market stabilisation in the latter half of the yearas the bulk of residential projects are expected to be handed over by then.