* DAMAC sells 28.39 mln GDRs at $12.25 each
* Dubai firm valued at $2.65 bln post offering
* DAMAC initially planned to raise $500 mln from sale
* Property market in Dubai recovering from crisis
By Praveen Menon and David French
DUBAI, Dec 3 (Reuters) - Dubai luxury real estate developer DAMAC got a lukewarm response to its share offering in London on Tuesday, a sign that international investors are still wary of the emirate's property market despite a recent recovery in prices.
Property prices in Dubai have rebounded by over 20 percent this year having slumped more than 50 percent from a 2008 peak when a real estate market crash sparked a debt crisis.
But some analysts have said the recovery has been driven by speculative buying, with the International Monetary Fund warning of another possible bubble.
DAMAC, which gave away yachts and sports cars to buyers of its luxury properties during the downturn, said it raised $348 million from the sale of 28.39 million global depositary receipts (GDRs). It had originally hoped to raise $500 million but reduced the size last week, with the final price set at $12.25 per GDR - bottom of the initial range.
"It may have been too early to test the merit of the Dubai real estate market; even though the markets have recovered sharply, we are coming back from a steep decline and a very low base," said Akber R. Naqvi, executive director at Dubai-based asset manager Al Masah Capital.
Investors in the offering were split roughly 40/40/20 percent between the Gulf, the United States and the United Kingdom, a banker who worked on the deal said.
The GDRs were flat with muted trading at 1340 GMT.
The share sale put a value of $2.65 billion on DAMAC which is the first Dubai property developer to list in London.
DAMAC's latest project is a Hollywood-themed 28 million square foot retail and residential development billed as 'the Beverly Hills of Dubai' which will include a golf course built in partnership with American mogul Donald Trump.
The firm often partners with luxury brands like Fendi and Versace to woo investors with designer fabrics and furniture.
It made a profit of $332 million in the first half of 2013, up 57 percent on the whole of 2012, as it benefited from the recovery in the Dubai real estate market.
Privately-owned companies in the United Arab Emirates are seeking alternative venues like London for share offerings to gain access to a wider group of investors and less stringent ownership rules, even as the local stock market surges.
Dubai's benchmark index has risen 83 percent year-to-date, making it one of the world's best performing bourses, yet the exchange has not seen a single IPO since contractor Drake & Scull in 2008.
"If you want to list a company on the Dubai Financial Market (DFM), it's difficult due to the minimum listing requirement - it's not flexible," said Sebastien Henin, portfolio manager at The National Investor.
Companies seeking a DFM listing must offload 55 percent of their share capital in the offering, a regulation that deters large family-owned firms who want to retain control.
DAMAC's offering could rise to $400 million if a greenshoe or over-allotment option is exercised. Should this be activated, 15 percent of the firm would be listed.
London has seen a revival in IPO activity this year, with more firms going public by mid-November than in the same period of any year since 2007, according to Thomson Reuters data.
Dubai healthcare provider Al Noor Hospitals, part-owned by private equity firm Ithmar Capital, listed in London in June and was valued at $1 billion, while rival NMC Healthcare raised 117 million pounds from its London IPO in 2012.
At 1343 GMT, the former was up 51.4 percent since listing, with the latter 93.2 percent higher since its debut.
Citigroup Inc and Deutsche Bank were joint bookrunners for DAMAC's offer, with the investment banking arm of Saudi Arabia's Samba Financial Group and VTB Capital acting as co-lead managers.