Dubai’s real estate market is showing impressive dynamics against the backdrop of global economic instability. The expected GDP growth, record figures in the tourism industry and large-scale infrastructure projects create a favorable background for the development of development projects.
The potential risks of a slowdown in the economy are constrained by the high demand of wealthy investors from developed markets, the influx of expats and international companies, the growth of the population and tourist flow, and the image of the emirate as a “polygon of global trends” and a “safe haven” in the context of geopolitical tensions.
We will conduct a comprehensive analysis of the current situation in the Dubai real estate market, consider key economic factors, assess the dynamics of supply and demand, as well as analyze potential risks and opportunities for investors.
The content of the article
- The recipe for Dubai’s economic sustainability during the global recession
- UAE Economic Development forecast: GDP growth and investment activity
- Demographic boom in Dubai: the government stimulates the influx of specialists and tourists
- Dubai real estate market: a balance between growth and possible risks
- The cyclical nature of the Dubai real estate market: a phase of rapid growth
- The investment nature of the market is strengthening
- The introduction of a new offer correlates with demand
- Redistribution of demand
The recipe for Dubai’s economic sustainability during the global recession
In the context of the global recession, the probability of an outflow of expats from the UAE, who are the drivers of development and form the demand for real estate, is reduced due to the economic stability of the country, the policy of long-term visas and the creation of comfortable business conditions.
UAE Economic Development forecast: GDP growth and investment activity
The global economy is in recession, while the UAE economy is strengthening
The IMF expects UAE GDP growth of 3.5% in 2024 and 4.2% in 2025. The main risk for the UAE economy remains sharp spikes in oil prices: despite the growth of non—oil GDP, the UAE remains an oil country, and investors are sensitive to changes in energy prices.
UAE Economic Forecast, UAE Central Bank, April 2024
|
2021 |
2022 |
2023 |
2024 (forecast) |
2025 (forecast) |
|
|
The dynamics of the global GDP (IMF) |
6% |
3,5% |
3,1% |
3,1% |
3,2% |
|
UAE GDP Dynamics |
4,40% |
7,9% |
3% |
4,8% |
5,2% |
|
Oil GDP |
-1,1% |
9,5% |
-3,9% |
2,9% |
6,2% |
|
Non-oil GDP |
6,5% |
7,2% |
5,9% |
4,7% |
4,9% |
|
Inflation |
-0,1% |
4,8% |
1,6% |
2,5% |
2,5% |
Businesses continue to choose the UAE for their activities despite the introduction of corporate tax in Dubai from June 2023
The number of new companies in the Dubai Chamber of Commerce increased to 67,222 in 2023 (+26.8% by 2022) and to 19,056 in Q1 2024 (+17.6% by Q1 2023), and the introduction of a single economic license to do business in Abu Dhabi It will attract even more companies to the region, which will also increase the demand for Class A offices.
Geopolitical tensions in the world continue to work for the UAE, strengthening the position of the Emirates as a safe country and a “safe haven” — this is facilitated by the UAE’s policy of non-interference in conflicts.
There is an active mutual integration of the countries of the Middle East
The UAE, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain intend to introduce a single visa by the end of 2024.
Against this background, Saudi Arabia is strengthening, which is increasingly attracting the attention of investors with reforms aimed at attracting business and the public, as well as large-scale development projects (CBRE estimates the total value of real estate projects in the KSA at $ 1.68 trillion compared to $ 409 billion in the UAE).
Demographic boom in Dubai: the government stimulates the influx of specialists and tourists
The growth of the economy and the real estate market is stimulated by the actions of the Dubai government to attract high-class specialists and wealthy tourists.
The population of Dubai has already increased by 25,776 people in the 1st quarter of 2024 and reached 3.68 million people.
In the near future, demographic growth will continue:
- In March 2024, the government announced a reduction in the processing time for resident and work visas from 30 to 5 days;
- In May 2024, a new 10-year Blue Residency visa was announced for individuals who promote sustainable development and environmental technologies.
Dubai shows record tourism figures in the 1st quarter of 2024. The sector is expected to provide 12% of GDP in 2024
5.18 million tourists (+11% by Q1 2023) visited Dubai in Q1 2024, and in 2023 the emirate ranked 4th in the world in terms of the number of tourists.
There is a trend towards an increase in interest from Western Europe — the share of tourists from here amounted to 22% of the total number.
The share of tourists in Dubai in the 1st quarter of 2024
|
Western Europe |
22% |
|
South Asia |
17% |
|
CIS and Eastern Europe |
16% |
|
The Arab States of the Persian Gulf |
13% |
|
Middle East and North Africa |
12% |
|
Northeast and Southeast Asia |
9% |
|
North and South America |
7% |
|
Africa |
3% |
|
Australia |
1% |
In accordance with the UAE Tourism Strategy 2031, the emirate intends to reach 40 million tourists per year by 2030.
Expansion of infrastructure and new opportunities for the development of territories
In 2024, construction of a new metro line began. According to the Dubai Metro Blue Line project, by 2029 there should be 14 stations that will become a link between the sleeping areas and the business center.
The planned expansion of Al Maktoum International Airport opens up new opportunities for logistics and capacity development of areas near the airport, primarily the Dubai South area.
Dubai real estate market: a balance between growth and possible risks
The cyclical nature of the Dubai real estate market: a phase of rapid growth
The Dubai real estate market is cyclical: now prices are catching up with the peak values of 2014, and the market is in a phase of sharp price growth.
The rise of the market in each cycle took place in two phases:
- the first one is long-lasting, with a moderate price increase;
- The second one is short, with a sharp acceleration in prices and the number of transactions due to speculative activity.
The current cycle is in the second phase, as evidenced by:
- quick sale of off-plan real estate (sometimes in a couple of hours);
- the dominance of real estate in advertising and the media;
- the massive appearance of new developers on the market.
Demand for apartments in the off-plan segment: correction risk constrains the influx of investors from developed markets
Off-plan real estate sales account for 66% of the total number of transactions (historically, 20-40%). Large sales volumes due to speculative activity are a potential correction factor in the future, which is currently being held back by high demand from investors from European markets in the recession phase.
The desire of investors to resell assets before the completion of construction and the due date of payments may lead to a price correction at the later stages of construction: taking into account the peak of price growth in 2022 and the construction cycle, this may happen in 2025-2026.
The interest of investors from developed markets (Western Europe) in Dubai, as well as high demand from HNWI, for whom prices are perceived acceptable, deter risk.
Increasing the number of cash buyers
CBRE estimates that the share of home buyers in Dubai for cash in the 1st half of 2023 peaked at 82%, and UBS points to their sharp growth since 2022.
At the same time, the expected reduction in US Federal Reserve rates should support mortgage buyers who form stable demand at the level of 10-30% of the total number of buyers. Since the dirham is pegged to the dollar, the correction should lead to lower rates in the UAE.
An additional deterrent: Dubai’s leading developers plan to impose restrictions on paying for real estate in cash. It is proposed to set a maximum threshold of 55 thousand dirhams, or $ 14,974, per transaction.
The investment nature of the market is strengthening
The growth in housing prices and rental rates is catching up with the peak of 2014. At the same time, it becomes less accessible to the middle class and increasingly acquires the status of an asset for resale in order to make a profit.
The new building market has been growing for the fourth year in a row
Demand peaked in 2022, when the price per square foot in apartments under construction increased by +17%. In 2023, prices in the off-plan segment increased by only 0.2% compared to 2022 due to the launch of new projects and the effect of a high base. Now prices for off-plan projects have already increased by 1.2% compared to 2023.
Experts continue to forecast price growth, but at a more moderate pace: for example, Knight Frank expects growth of 3.5% in the economy and 5% in the premium segment in 2024.
The average rental rate has peaked, and the volume of contracts has been growing for the sixth year. If in 2023 the increase in rental rates reached 14%, now it is already 12% compared to the full year 2023.
The rental market in Dubai is driven by expats, tourism, as well as the middle class, which is forced to enter the rental market due to high mortgage rates.
At the same time, the landscape of the rental market is expected to change in the near future towards higher rates. The reason is the update of the RERA index, according to which an acceptable range is set for rent increases for contracts for the extension of a specific type of housing and area.
If earlier the old renewal contracts were taken into account in the calculation, now the updated calculator includes only new contracts and reflects the current high market prices, which increases the range of rates. This allows property owners to significantly increase the rent on existing contracts.
If several leases in a certain area are extended with significant increases, this will change the dynamics for the entire area.
The introduction of a new offer correlates with demand
Against the background of growing demand for apartments and an influx of developers in the long term, there is a risk of an oversupply in the economy segment, which is offset by an influx of expats and changes in the rental market from the RERA regulator.
In addition to investor activity, the price growth in the real estate market is supported by demand from HNWI for premium housing
In the 1st quarter of 2024, a record 402 residential properties worth more than 20 million dirhams were sold. The growth was 40% by the 1st quarter of 2023.
Among other things, there is a trend towards the growth of branded residence type projects not only in Dubai, but also in neighboring emirates, which are in demand by wealthy individuals.
The shortage of supply in the segment (a total of 368 units are planned to be delivered this year) provokes an increase in prices.
There is a boom in the supply of economy-segment apartment projects
If historically the average volume of supply input was about 30 thousand units per year, in the last 2 years this volume has exceeded the average. So, in 2023, a record 39.4 thousand units were commissioned since the pandemic (83% of them are apartments), and in 2024 another 38 thousand units are expected.
This is happening against the background of a decrease in the interest of developers in villa projects: -31% in 2023 (versus 2022) and -30% in the 1st quarter of 2024.
The total supply is estimated at about 78-80 thousand units by 2028.
The introduction of a new offer correlates with demand
More than 8,300 units were commissioned in the 1st quarter of 2024, 68% of them are apartments, 29,690 units are expected in the next quarters of 2024, and experts see no reason to panic.
However, upon completion of the construction of most of the projects that have now begun, the presence of a large runoff with a decrease in speculative demand can create an unhealthy market situation.
Redistribution of demand
The trend towards the development of other emirates of the UAE based on the experience of Dubai, as well as the request of investors for higher yields, leads to a redistribution of demand within the UAE.
The demand for real estate in neighboring emirates is now mainly created by wealthy individuals: according to Knight Frank, HNWI intends to invest $ 408.3 million in residential real estate in Abu Dhabi and $ 388.5 million in Ras Al Khaimah.
Abu Dhabi is becoming Dubai’s key competitor in the real estate market
In 2023, the number of transactions with new buildings in the emirate exceeded the figures of 2022 by 94%, and in the 1st quarter of 2024 – by 3% compared to the 1st quarter of 2023 (1,641 transactions).
In addition to HNWI, Abu Dhabi attracts investors with more affordable prices and high expected returns, as well as the absence of a tax on rental income, capital gains and a 2% tax on transfer of ownership versus 4% in Dubai.
Abu Dhabi positions itself as a platform for business development
The Government of the emirate has announced the launch of a new unified economic license to optimize business in free economic zones ― by 2025, it is planned to complete the construction of the Abu Dhabi cultural and investment center – Saadiyat Cultural District.
These measures are aimed at attracting not only wealthy individuals, but also the middle class, which will also drive the real estate market.
There is an increase in investor attention to Ras al Khaimah
In 2023, the total volume of real estate transactions in the emirate reached 3,111 units, exceeding the figures of 2022 by 36.5%. This year, the growth trend continued ― in 2023, well-known brands Aldar, Ellington, JW Marriott entered the Ras al Khaimah market with resort real estate projects.
The “Wynn effect” contributes: the opening of the first in The UAE casino in 2027 will contribute to the development of the entertainment, tourism and real estate sectors.
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