There is a two-bedroom apartment on the 25th floor of Jumeirah Beach Residence with an excellent view of Dubai's property market; where it has been and where it is heading. In February, the apartment's British owner sold it for Dh1.5 million (US$408,000) to a compatriot, reaping a Dh680,000 profit on what he had paid for it less than two years earlier - a return equal to 44 per cent a year. Then in mid-March, as the global economic crisis raged on, the apartment's new owner decided to sell it for a little more than Dh1.43m to a Russian buyer, escaping with a loss of about Dh66,000. That works out equal to a loss of 42 per cent a year. Since peaking last September, property prices in Dubai have dived, according to data from Reidin.com, a Dubai-based company that has compiled an online database of every property transaction registered with the Dubai Land Department since 1973. An analysis by The National of the more than 24,000 transactions registered in the past two years reveals that the average property price in Dubai has tumbled about 33 per cent from its peak last September, with prices in the first quarter slipping 11 per cent since the start of this year. But prices in the first three months of this year were still 12 per cent higher - not lower - than they were in the same quarter last year. "That is a surprise," says Ryan Mahoney, the managing director at the Dubai property agency Better Homes. Mr Mahoney and other property experts predict prices will keep falling for at least the next three months before finding their footing. In the meantime, they say, the property market is diverging. Where once investors were willing to buy from blueprints, the emphasis now is on finished properties that offer high-quality, affordability and a convenient location close to amenities such as cafes, restaurants and shopping. As the market has shifted, Mr Mahoney says, buyers are thinking less about whether a property will earn quick profits and instead asking themselves how much they might enjoy living there. How they answer will reshape the future of the country's property industry. In the meantime, the continuing slump has troubling implications for the economy. Property and construction still account for about 15 per cent of the nation's economy and represent the largest source of jobs. Yet lenders such as the mortgage company Amlak Finance predict more defaults as job losses mount and property prices fall, a trend that will put further pressure on the country's banks. Some foresee a vicious circle of layoffs, expatriate departures, slower economic growth and falling property prices. "We will see a slowdown or contraction in a number of economic sectors, most notably in real estate and construction as projects are cancelled or put on hold," Monica Malik, an economist with EFG-Hermes, wrote in a March report that forecast a 30 per cent decline in Dubai's population of construction workers. "The fall in population will further result in weaker demand for housing." The Reidin.com statistics are not perfect. Analysts note that the data is only as reliable as the human beings at the Land Department whose job it is to input data on each transaction. And since registration of property became mandatory in November, the department's employees have apparently been inundated with owners rushing to register deals dating back as far as 1997. In March alone, the land department registered more than 500 deals that took place before 2007. The data also probably fail to fully capture the frenzy last year in off-plan sales, in which buyers made down-payments to developers for property still under construction. If the value of the property fell below their purchase price, many probably walked away from their deals, never bothering to register them. Nevertheless, the data provide what is probably the most comprehensive look yet at trends in Dubai's property market. According to Reidin.com's data, the property craze peaked in April last year as prices were rising at a rate of 43 per cent a year. Prices continued to rise until September, even as the number of deals dwindled. Then, after rising 37 per cent in the third quarter from the previous quarter to Dh1,106 a square foot (sq ft), property prices dropped, losing 15 per cent in the fourth quarter and another 11 per cent in the first quarter to an average of Dh839 a sq ft. The numbers look even worse when adjusted for inflation. The latest official estimate of inflation, from March of last year, is 11.5 per cent. In real terms, then, property prices managed to eke out a 0.5 per cent gain over the past year. To gain some comparison, Dubai residential prices in February dropped by 7 per cent in inflation-adjusted terms. In the US, home prices fell by almost 19 per cent. One of the market's vulnerabilities, property executives say, is that it is driven primarily by foreign buyers and is therefore even more susceptible than others to global economic trends. One of Dubai's primary sources of demand, for example, has in recent years come from increasingly affluent Indians. But in September, Indians became net sellers of Dubai property. That is when panic seized the market, executives said, as widespread predictions of Dubai's immunity to global economic trends proved to be wishful thinking. Property owners rushed to sell. But would-be buyers found themselves stymied by a sudden freeze in lending as UAE banks faced a global liquidity crunch that forced the country's two main mortgage lenders, Amlak Finance and Tamweel, to stop financing new mortgages. Now, with global liquidity recovering and local banks slowly easing lending restrictions, analysts say buyers are tip-toeing back into the market to hunt for bargains. They are proving pickier than in the past, agents and executives say. Properties that are still under construction are out of favour. What's in? "Anything that's ready," says Anjili Samtani, an agent at Megabucks Realty in Dubai. In part, this shift reflects the disappearance of short-term speculative buyers, the kind of investors who bought "unbuilt" properties with only a small cash down payment, without ever obtaining a home loan. After being driven sky-high by investors eager to own property in the shadow of the world's tallest building, prices at two properties near Burj Dubai, Old Town and The Residences, have fallen since September by more than 50 per cent. Likewise, villas on Palm Jumeirah, some of the world's most high-profile properties, have fallen in value by 44 per cent. Analysts say there is also a shift among buyers to quality, a move made possible now that more and more developments have been completed. "Investors are able to look and touch and feel something that previously they could only see in a brochure," says Blair Hagkull, the managing director of Jones Lang LaSalle in Dubai. "The motivation of an end-user is quite different from that of a speculator. End-users focus on size and views and parking. People are starting to look at who the developer is, who the contractor is. Design issues are becoming more important." Some developments have therefore bucked the trend and risen in value. Affordable housing in developments such as Discovery Gardens and International City, for example, has managed to rise in value through the slump. Properties with prime locations or outstanding amenities have performed even better. Yacht Bay, with views of Dubai Marina Yacht Club, has enjoyed a 55 per cent jump in price. The Waterfront, one of several luxury developments by Trident International Holdings, has jumped in value by 62 per cent. "The finishing is superb," says Ms Samtani. The bluest of the blue-chip properties have lost little of their lustre. The most expensive property in Dubai, for example, remains the luxurious La Reve Tower, where prices remain at roughly Dh2,500 a sq ft even after falling 26 per cent since the start of the year. But prices at La Reve are still 35 per cent higher than they were a year ago. This differentiation, property executives say, is likely to determine which developers survive the downturn and which don't. "In this process of natural selection, buyers will be killing off the brands of developers that didn't deliver on their promises," Mr Mahoney says. Analysts warn that there is little to keep prices from falling further during the summer slowdown in business activity. "The panic is still there," says Sharjeel Bijdani, a banker in Dubai who owns four apartments. While transaction numbers improved in February and March, analysts say not to expect any improvement until after Ramadan. Some also warn that easing mortgage terms could unleash a wave of pent-up selling as buyers obtain financing to pick up bargains. When the market finally recovers, analysts say, it is likely to be much more robust. The Land Department's statistics, for example, could help reduce volatility in prices by improving transparency, and the shift from short-term, speculative property investing to long-term purchases by people who want to live in the homes they buy will tend to make prices more stable, they say. The market's current malaise, therefore, is helping push Dubai's urban development into a more mature phase. "This whole move, as painful as it is for everyone, particularly for us," says Mr Mahoney, "is better for the city in the long term." warnold@thenational.ae