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Dubai United Arab Emirates
Home values in the city have risen for 15 consecutive quarters
Average rents for single-family homes have shot up to $96,000
Dubai’s red-hot real estate market is defying predictions of a slowdown, a sign that the Middle Eastern business hub may be breaking free from its boom and bust cycles.
“Prices continue to rise and Dubai’s transient nature appears to be over,” said Taimur Khan, head of research at global real estate consultancy CBRE Group Inc. “Whether new or long-standing residents, most are now buying for residential purposes and as a result we are seeing prices remain resilient.”
An increase in real estate prices
Many analysts had expected the rise in property prices and rentals – which had made Dubai one of the world’s hottest real estate markets in the world – to moderate or even decline in early 2024. These predictions have not come true, despite the ongoing tensions resulting from the war between Israel and Hamas. the cost of living and the city’s declining appeal to wealthy Russians.
Instead, home prices have risen for 15 straight quarters and are up 20% for the year ending in May, according to Cushman & Wakefield Core. Rents have risen for thirteen quarters in a row, albeit slightly slower than last year.
“Demand is coming from everywhere, even though Russian buyers have fallen in the market,” said Prathyusha Gurrapu, head of research and advisory at the real estate consultancy. “Prices in most areas have now surpassed their 2014 peaks and are still rising as buyers continue to arrive from Europe, India and other South Asian countries,” she said.
Dubai had a record 274 billion dirhams ($74.6 billion) worth of real estate changing hands in 2023, according to real estate advisor Knight Frank LLP. In the first three months of this year, the city has already recorded 89.2 billion dirhams in transactions.
Influx of wealthy investors
Prices across the city have risen by 60% since the end of 2020, while rents have risen by a whopping 83%, Cushman & Wakefield Core calculations show. That recovery was aided by an influx of wealthy investors – including Russians – seeking to protect their assets, crypto millionaires and wealthy Indians looking for a second home. The government’s handling of the pandemic and its liberal visa policies also attracted more foreign buyers.
Dubai’s real estate market has long been known for its sharp peaks and valleys, with one of the most dramatic downturns in 2009 after years of debt-fueled growth. Prices recovered in 2011 before falling again in 2014 after an oil price collapse hurt regional economies. Since then, the government has introduced a series of reforms for buyers and developers to limit volatility, including increasing mortgage deposit requirements to 20%.
But the recovery and accompanying convergence of wealthy new residents is transforming the city’s luxury market and prompting developers to revive projects that have lain dormant for nearly 15 years.
Among them are the children of billionaire developer Hussain Sajwani who are building a project on an artificial archipelago in the shape of a world map. State-owned Nakheel PJSC has managed to sell off mansions before construction can begin on Palm Jebel Ali, the largest of the city’s famous palm-shaped man-made islands, which along with projects on the Deira Islands have attracted large numbers of buyers – some in the line was in front of $5 million homes.
According to CBRE, the average rental price in the emirate rose by 22.2% over the year to May. Rents for single-family homes, known locally as villas, have seen some of the largest increases and now average $96,000 per year.
Rising costs are a headache for policymakers battling to ensure Dubai remains a competitive hub for global companies, with many workers complaining that their rents have soared while their salaries have remained flat. Dubai was ranked as the 15th most expensive city in the world for expats in Mercer’s 2024 Cost of Living report.
Population wave
Developers built about 40,000 homes in the emirate last year and are expected to complete construction of another 39,000 homes by 2024. Knight Frank estimates that around 260,000 homes will be built by 2029, 80% of which will be apartments and villas. make up the rest.
So far, population growth has helped the market absorb the new supply. Roads are gridlocked and schools are seeing some of the highest enrollment in years. Dubai officials expect the city’s population to rise from about 3.3 million in 2021 to 5.8 million people in 2040.
Still, Gurrapu expects prices will begin to moderate from next year through 2027 as the bulk of new homes come onto the market.
Affordability affected
For now, housing affordability has declined across the city. Many overpriced residents moved to cheaper locations, and many others have taken their landlords to court in an attempt to resist rising rents.
A large proportion of new sales are taking place within the so-called ‘off-plan market’, where developers sell homes before construction and receive payments in installments. For buyers, the new developments offer a cheaper alternative to established locations where values have soared. But those purchases are usually financed from a buyer’s savings and don’t qualify for mortgages.
“The market is becoming extremely expensive for middle-income buyers and that will put downward pressure on the market,” Gurrapu said. “On the other hand, rising rents and falling interest rates are likely to encourage new buyers.”
Confident developers
Dubai’s developers are taking advantage of the market’s resilience, launching projects at a rapid pace and raising funding faster than ever before.
Payment plans, which sometimes allowed buyers to complete their purchases up to seven years after a property was built, are nowhere to be found. Emaar Properties PJSC, Dubai’s largest developer with a market share of around 30%, requires buyers to pay the final 15% of the property’s value before the keys are even handed over.
At least for the time being, the breathless rise of the real estate market appears to be continuing.
“I really thought the market would moderate given the huge gains in recent years,” CBRE’s Khan said. “But now that I look at the dynamics, I’m starting to believe that it’s unlikely we’ll see a big decline in the near future.”
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