* Signs of market turning up increase this year
* Recovery still mainly in higher-income areas
* Dubai benefits as safe haven in same way as London
* Rapid rise in prices remains unlikely
* But safe haven status may last for years
DUBAI/LONDON, Aug 9 (Reuters) - For a key to the recovery of
Dubai's real estate market, one need look no further than the
Burj Khalifa, the world's tallest tower, which rises out of the
desert floor of the city's gleaming downtown area.
Figures released by the Dubai government this week showed
Indian citizens were the main buyers of luxury apartments and
commercial space in the Burj Khalifa during the first half of
2012, spending $222 million. Iranians came second with $128
million.
For the Indian buyers, Dubai property is a refuge from
currency depeciation that has taken the Indian rupee down
about 20 percent against the U.S. dollar since the third quarter
of 2011. For the Iranians, Dubai provides a safe place to park
money as international sanctions, imposed over Tehran's disputed
nuclear programme, ravage the Iranian economy.
Four years after a property price bubble burst in Dubai,
triggering a slide that cut home prices more than 60 percent
from their peak, the market finally appears to have stabilised
and is recovering in some areas. A major reason is an influx of
foreign money using the emirate as a safe haven.
"A lot of people in the Middle East and Russia, Pakistan,
the Asian sub-continent are looking for a safe haven," said
Farouk Soussa, Middle East economist at Citigroup in Dubai.
"Perceptions are that the real estate market has bottomed
out. If you are looking for more long-term investment, the
market in Dubai seems reasonable."
Because of the importance of real estate in Dubai's economy
- it contributed about 13 percent of gross domestic product last
year, almost as much as manufacturing - a healthier property
market is likely to have a string of positive effects. Among
other things, it may reduce the pressure on indebted
state-linked companies that are restructuring their loans.
RECOVERY
The recovery is not being felt throughout the market; in
less popular areas, especially less affluent districts in
northern Dubai, prices have stayed weak, analysts say.
But positive signs have mounted in the first half of this
year. Real estate agent Knight Frank's quarterly prime global
cities index showed apartment prices in Dubai rallied over 5
percent in the second quarter compared with six months ago.
Average apartment rents in Dubai are estimated to have
increased 2 percent in the second quarter, according to a report
by property consultants CBRE. Particularly well-situated
communities such as Emirates Living and Downtown Dubai may have
seen rises of 5 to 8 percent quarter-on-quarter, it said.
The real estate recovery has supported a rebound in Dubai's
stock market. Shares in its biggest property developer, Emaar
Properties, hit a 15-month high last week and are up
32 percent this year - though much of the company's rising
earnings are due to its successful diversification away from
residential real estate into hotels and retail.
"We see Dubai real estate performing well over the medium
term," said Graham Stock, strategist at frontier fund manager
Insparo in London, adding that Dubai to some extent resembled
London in the way that safe-haven buying by foreign investors
was aiding property prices.
In London, prices have been boosted by investors from
countries such as Russia and China because of Britain's
political stability and strong legal system, while the sector
has also attracted buyers from crisis-hit Greece.
Dubai lures buyers from the Indian subcontinent and Iran
because of geographical proximity, easy access through its
well-developed web of international links, and large Indian,
Pakistani and Iranian communities. Meanwhile, the United Arab
Emirates' political stability during violent uprisings around
the Middle East has attracted Arab money to Dubai.
Money from Afghanistan, created by international aid there,
is believed to be flowing to Dubai as nervous businessmen
prepare for the withdrawal of most foreign troops from that
country by the end of 2014.
Foreign investors bought real estate assets in Dubai worth
28.3 billion dirhams ($7.7 billion) in the first half of 2012,
up 36 percent over last year, Dubai government figures show.
FUTURE
Nobody is expecting the market to come close to resuming the
wild boom seen before 2008; prices will take many years, perhaps
decades to regain their peak levels.
"Dubai's property market will improve, but gently. Not at
the 40 percent growth per quarter that we saw during the boom,"
said Loic Pelichet, Dubai-based assistant vice president for
research at NBK Capital.
"The boom of 2008 is very unlikely ever to happen again.
That was just massive speculation. There is recovery in certain
places, but there's still a lot of inventory coming into Dubai."
Twenty-four thousand new residential units are scheduled to
be delivered in Dubai during the second half of 2012, and a
total of 41,000 units by the end of 2014, consultants Jones Lang
LaSalle said. The existing number of residential units is
estimated to be about 344,000.
Pelichet also said it was unclear whether property prices
would continue rising when safe-haven demand related to the Arab
Spring eventually dried up.
But there are reasons to think the market may continue
recovering for some years at least. One is the fact that by the
standards of the top international cities, Dubai is still fairly
cheap in the wake of its market crash.
Apartments in the 828-metre Burj Khalifa range from about
$710 to $1,035 per square foot, according to real estate
brokers. This is much cheaper than average prices in prime areas
of London, which can hit $3,000 or more per square foot.
Secondly, Dubai may attract new flows of safe-haven money
even if its existing ones start to dry up. The UAE dirham's
peg to the U.S. dollar will help to make Dubai attractive
if, for example, a partial collapse of the euro zone sends funds
fleeing from European currencies.
The exposure to the dollar's exchange rate could turn sour
if the United States is caught in a debt crisis. But in that
case, the comfortable budget positions of Gulf economies - the
UAE is expected to post fiscal surpluses of over 5 percent of
gross domestic product this year and next, according to a
Reuters poll of analysts - mean that more than almost anywhere
else, the Gulf will be able to spend its way out of trouble.
That could attract investors from around the world to Dubai.
(Editing by Andrew Torchia)