Official figures for last month showed house price inflation in Dubai falling below 7 per cent per year for the first time since last October.
That is the first sign in government data that Dubai’s housing market may be starting to cool – as official inflation figures lag behind private sector estimates that show the emirate’s rents and prices already falling significantly.
Overall consumer price inflation remained flat at an annual rate of 4.2 per cent in July.
Property prices in Dubai have fallen by 4 per cent over the past three months, while rents have dipped by 2 per cent over the same period, according to data from Reidin, the real estate data provider.
Government data lags behind private forecasters because the sample used by the official statistics body is not updated as regularly, analysts have said.
Property transactions fell by 69 per cent in the second quarter, according to data from Dubai Land Department.
This suggests that government measures to trim demand in the real estate sector have had an effect, according to Khatija Haque, an economist at Emirates NBD.
Dubai’s government has doubled its transaction tax on the purchase of properties, and introduced limits on the size of mortgages homebuyers can take out.
A stronger dollar has also slowed the housing market. The higher dirham has raised the price of buying a house in Dubai for foreign investors. But sellers have benefited from the same exchange rate – as it means that the proceeds of Dubai home sales go further in foreign currencies.
Food prices showed a one-off spike of 5 per cent, following the end of Ramadan. That is in contrast to a run of low and negative price changes, as global food prices hit five-year lows, according to the United Nations Food and Agriculture Organization.
Inflation from abroad is set to fall further following China’s devaluation of its currency, the yuan, which has fallen by 3.5 per cent since Monday.
That means cheaper consumer goods in Dubai – China is Dubai’s largest trading partner, having overtaken India and was the UAE’s second-largest trading partner in 2014.
Most of the emirate’s inflation is driven by increases in domestic costs, limiting the impact of foreign drivers in influencing the headline inflation figure, according to Alp Eke, senior economist at the National Bank of Abu Dhabi.
The deregulation of petrol and diesel prices, implemented from August 1, is likely to push up prices in future inflation measures, economists have said.
Standard Chartered raised its estimate for the 2016 inflation rate by 0.3 percentage points after the announcement, while Abu Dhabi Commercial Bank estimates that new, higher fuel prices will add about 1.3 per cent to headline inflation next year.