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Enterprise Explains: Behind rising property prices + the outlook for the market in 2024. Data out over the past few weeks has pointed to a record increase in real estate prices in the UAE in 2023, with indications property prices will continue to appreciate in 2024 — albeit potentially at a slightly slower pace. The IMF estimates that real estate prices rose at the highest levels globally last year, with a 10.4% y-o-y surge, while others have estimated an even higher 15-18% surge in Dubai alone.
By the numbers: The UAE ranks sixth globally in estate price increases since pre-pandemic levels, rising 14.1% and trailing Portugal, the US, Japan, and the Netherlands, according to the IMF. Dubai real estate’s residential real price growth rates surged higher than any other major city in 2Q 2023, including Miami, Tokyo, and New York, according to the 2023 UBS Global Real Estate Bubble Index.
Sales also hit a record high in Dubai: Dubai’s real estate sales neared AED 401 bn for the first time ever last year, with a record 129k sales recorded, up 32% y-o-y, Gulf Today reports, citing a review by real estate brokerage W Capital.
The rental market is no different: Rentals in the emirate have risen some 42% since 2020, Bloomberg reports, citing data from property advisory firm CBRE Group.
Soaring prices owe a lot to an influx of foreign wealth: Russian business leaders turned to Dubai after the outbreak of war in Ukraine, making up nearly 15% of the market, the Telegraph reports. Ultra-high-net-worth Russian individuals looked to Dubai due to its lack of Western sanctions, low taxes, favorable positioning for remote work, and residency programs. Middle-class Russians did the same, fueling competition for real estate at multiple price points.
And it’s not just Russians: Half of Dubai’s property market consists of overseas buyers, including crypto m’naires and wealthy individuals from Europe and India, reports The Telegraph. Chinese buyers also flocked to Dubai to safeguard their investments amidst geopolitical tensions, Sergei Rakov, head of technology at real estate agency Allsopp & Allsopp said.
A lot of it was driven by luxury buys: These buyers tended to favor Dubai’s luxury segments, Rakov said. Wealthy buyers spent approximately USD 2.27 bn on luxury homes in Dubai in 2023, with the most expensive transaction (a five-bedroom apartment in Palm Jumeirah’s Como Residences) totaling USD 136.2 mn, reports Bloomberg. The number of homes purchased at USD 25 mn or more doubled y-o-y to reach 56 luxurious homes sold compared to 28 in 2022. Palm Jumeirah Island and Jumeirah Bay Island pooled the most global wealth.
Dubai estates are expected to get slightly more expensive in 2024, though at a slower pace than last year. S&P Global Ratings forecasts a 5-7% jump in Dubai property prices this year, down from 15% in 2023. The ratings agency also sees a risk of a cyclical slowdown, suggesting we could see prices “decelerate and potentially slightly reverse over the next 12-18 months, with price declines not exceeding 5%-10%.”
The past two months have shown signs of a slowdown: Morgan Stanley sees “continued tailwinds” for the market and thinks the market this year will be “less of a boom than 2023,” Bloomberg reports. Despite rents continuing to increase, the rate of the increase is cooling in some popular neighborhoods, with average rents rising 19.2% in November, slightly slower than October’s 19.7%, according to CBRE data picked up by Bloomberg.
Purchasing power is stretched thin:Buyers in Dubai are turning to smaller, one-bedroom apartments and studios amid global economic uncertainty, Bloomberg quotes Tatjana Lescova, S&P’s associate director of corporate ratings, as saying. Lescova, who covers three Emirati developers with a combined market share of some 50%, pointed to a downsizing trend late last year. “You have the high net worth individuals who can afford multiple and multi-mn properties, but the bulk of the market is coming to a certain limit in terms of purchasing power as property becomes expensive,” Lescova said.
Oversaturation + less demand will give way to lower prices: Property developers are already lowering prices to “reel in hesitant buyers,” Lescova said. This comes as sales of houses are expected to jump to 40k in Dubai this year, compared to historical figures of 15-30k homes sold.
Developers will shift their focus to earnings growth as they look to avoid history repeating itself with the boom-and-bust cycle in real estate in Dubai, Bloomberg cites Morgan Stanley as saying.
Despite the expected slowdown, prices in Dubai are considered to be “fairly valued,” with consistent income growth and rental growth surpassing owner-occupied price growth,according to UBS.
