Dubai’s real estate market is no stranger to big headlines and big numbers.
Ever since recording growth of 162% in the 6 years between 2002 and 2008 in the emergent Gold Rush, Dubai investors have known they could get serious short-term growth from the prime market in the GCC – provided they exited in a timely manner.
Now, the big headlines and the big numbers are back and it’s a turnaround that got many investors looking to re-enter the Dubai market.
Is it another bubble? Or is there hard evidence of a new era of price resilience in Dubai real estate?
What's happened with Dubai property over the last 12 months?
The Dubai market broke a 12-year record in 2021. Even in a market with a history of record-breaking performance, the figures released were notable and potentially appetite-whetting.
Over the course of 2021, industry sales transactions totalled AED 151.07 bn ($41.1 bn) – a value that was a staggering 110% more than the previous 12-month period. The volume of transactions also increased by 75% between 2020 and 2021. This wasn’t just a bounce-back from a pandemic-depressed market either, the 2021 totals were also much higher than 2019 – a 90% and 55% rise in value and volume respectively.
For further context, there was also a healthy 60-40 split between the secondary/complete and off-plan markets too.
Dubai property market in 2022
So was the 2021 performance the latest in a long line of boom-bust cycles or the start of a more sustained growth curve that investors can still be early on?
Well, 2022 has certainly continued the stellar performance.
Investors have just witnessed one of the best quarters ever recorded in the Dubai real estate market – not just in the last 12 years, but ever.
January through March saw investors purchase over 20,000 properties in Dubai – the most number of transactions for a Q1 period in history.
Investors seemed most focused on apartments, with them accounting for the vast volume of these transactions, but there was healthy growth across the whole market with villa sales also increasing by 58%. Again, it appears investors have confidence in both the off-plan and resale markets. Off-plan sales increased almost 100%, secondary sales almost 75%. up nearly 95% and secondary market sales (resales) were up nearly 75%.
What about capital values in the current market? One recent report revealed Villa prices have increased by 20% in the past 12 months with the more voluminous apartment market still delivering strong growth at almost 10%.
Where are the highest price increases in Dubai so far?
Since the start of the growth cycle, the largest price rises have again been found in the luxury end of the Dubai real estate market. Some investors have seen asset values soar by an incredible 60% in the year period, but there has been near-universal double-digit growth across the ultra-prime end of the property spectrum.
An influx of demand from wealthy global investors and buyers has fuelled activity in the $10 million-plus home market, which has, of course, recorded record levels of transactions. Last year there were 93 transactions of these considerable assets and, to put that in some context, the previous high watermark was just 31 sales way back 7 years ago in 2015.
The latest figures at the end of Q1 highlighted a few key geographical markets too. In April alone, villa prices in Palm Jumeirah increased 5%, while villas in Jumeirah and Jumeirah Golf Estates saw capital appreciation of 3.7% and 4.6% respectively. Away from Jumeriah, a top performer was Al Barari where villa prices increased 4.9% during April.
Although on the whole, returns are slightly lower in the apartment market, big returns can be found. In April investors with apartments on the Palm and in Old Town both recorded growth of 4%.
Will Dubai property prices rise or fall now?
This is only the Dubai real estate market’s third cycle, so there is little historical evidence to compare, and, of course, no cycle is ever the same, but there is growing sentiment that the market will be less volatile and growth more sustained this time around, even now that the long-term prospect of Expo 2020 has been and gone.
A Reuters poll of 13 property market analysts noted the very strong performance post-Expo 2022 and post-pandemic, but was adamant the market would slow to more sustainable levels, predicting annual average growth of 3% by 2024.
Tenanted properties will also continue to experience investment growth, with analysts expecting the rental rate to continue to rise over the short to mid-term. Current rental growth in Dubai is extremely expansive: rents are increasing at their fastest rate (16%) since October 2014.
What's driving this Dubai real estate growth cycle?
For much of the past 2 decades, the UAE property market has been linked to the mantra of ‘build it and they will come’. Now it seems the modus operandi has been tweaked slightly to a more sustainable and more strategic build it and they will stay.
The government made a series of decisions and associated initiatives that made it easier and more attractive for people to commit their long-term future to Dubai. Although these plans included residency permits for retirees and remote workers, the most significant change has been the expansion of the 10-year visa programme.
The Golden Residence Scheme is a long-term visa offering people 10 years of residence in Dubai. The latest updates simplified the eligibility criteria while providing additional benefits and flexibility to visa holders. The Golden Residence changes are detailed here but in summary, the new visa rules made it possible for more people to gain residence when purchasing Dubai property, including off-plan assets and purchases with mortgages.
Other macro-economic and geopolitical factors also hint at more sustained growth.
Of course, the UAE’s oil revenues will grow in line with a global price rise in the commodity, but Dubai is now a very diversified economy. Post covid, the UAE is the world’s most vaccinated nation – over 95% of the population have at least 2 doses. The decisive action has allowed the emirate to get ahead on its economic recovery and enabled Expo 2020 to proceed with only a year delay. This has led to an upward revision of GDP forecasts, with Dubai predicted to record wider economic growth of 6.2% this year, following 2021’s 5.2% growth.
The positive post-covid sentiment, alongside the new visa regulations, has also helped employment in the emirate. Dubai has seen job creation rates rise by 3.5% so far in 2022.
Finally, the market is itself showing signs of maturity. Although the prime submarket sets the pace with an influx of ultra-high net worth residents, the market at all levels of the scale is also attractive on global terms. Furthermore, the more established communities within Dubai are now becoming desirable in their own right and investors face strong competition from end-users and existing residents.
Will Dubai real estate prices rise indefinitely this time?
No. Every property market in the world will experience highs and lows, but there is hope that Dubai’s days of boom and bust are behind it. Both of Dubai’s previous cycles were almost 10 years long and despite huge overall gains, both experienced prolonged intra-cycle periods of stagnation.
Investors are only a little over a year into this third growth cycle, but the ceiling is there for all to see – and breakthrough. Average real estate prices in Dubai are still more than 25% below the last market high in 2014. That equates to per square foot prices that are 26 % less for apartments and almost 11% less for villas – even despite the huge growth in the latter over the past 12 months.
It is also worth noting that most buyers, end-users and investors, are fairly insensitive to historical pricing and value. In fact, comparisons are much more likely to be made with other leading metropolitan cities and real estate markets and under such comparisons, Dubai’s prime waterfront property is very competitively priced.
The immediate future looks set to be a year of mid-level growth as high transaction volumes have seen most of the completed and secondary stock be acquired by high net worths looking for a second home or relocation. This lack of inventory will filter through the rest of the market and should buoy interest in the prime off-plan market too.
Seeking to invest in Dubai real estate?
At Chestertons, we’ve many years of experience operating in the Dubai property market, helping investors acquire assets that outperform even the strongest growth cycles.
