An aircraft from the Emirates company flies over Dubai on May 15, 2024. (Photo by Giuseppe CACACE / AFP)
DUBAI: Dubai’s red-hot real estate market is defying predictions of a slowdown, in a sign that the Middle Eastern business hub might be breaking free from its boom-and-bust cycles.
“Prices are continuing to rise and the transient nature of Dubai seems to be well and truly over,” Taimur Khan, the head of research at global property advisory firm CBRE Group Inc, said. “Whether new or long-standing residents, most are buying for occupancy now and as a result we’re seeing prices remain resilient.”
Many analysts had anticipated the surge in property prices and rents – that had made Dubai one of the hottest property markets globally – to moderate or even drop by early 2024. Those predictions haven’t materialised despite continuing tensions from the Israel-Hamas war, rising cost of living and the city’s fading appeal for wealthy Russians.
Instead, home values have risen for 15 consecutive quarters and are up 20% for the year ending May, according to Cushman & Wakefield Core. Rents have climbed for 13 straight quarters, although at a slightly slower clip than the previous year.
“Demand is coming from everywhere even though the Russian buyers have declined in the market,” said Prathyusha Gurrapu, the head of research and advisory at the real estate consultancy firm.
“Prices at most areas have now surpassed their 2014 peaks and are still growing as buyers keep coming from Europe, India and other South Asian countries,” she said.
Dubai had a record 274 billion dirhams or about US$74.6bil worth of property changing hands in 2023, according to property consultant Knight Frank LLP. In the first three months of this year, the city has already recorded 89.2 billion dirhams in transactions.
City-wide prices have surged 60% since the end of 2020 while rents have soared a whopping 83%, Cushman & Wakefield Core’s calculations show.
That recovery was underpinned by an influx of wealthy investors – including Russians – seeking to shield their assets, crypto millionaires and rich Indians seeking second homes. The government’s handling of the pandemic and its liberal visa policies also attracted more foreign buyers.
Dubai’s property market has long been known for sharp booms and busts, with one of its most dramatic downturns coming in 2009, following years of debt-fuelled growth.
Prices rebounded in 2011 before slumping 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 raising required down payments for mortgages to 20%.
But the rebound and accompanying convergence of wealthy new residents is transforming the city’s luxury market and prompting developers to revive projects that had lain dormant for nearly 15 years.
Among those are the children of billionaire developer Hussain Sajwani who are building a project on an artificial archipelago built in the shape of a world map. State-owned Nakheel PJSC managed to sell mansions ahead of construction on Palm Jebel Ali, the largest of the city’s famous palm-shaped artificial islands, which along with projects on Deira islands have drawn throngs of buyers – some of them queuing up for US$5mil homes.
The average rental rate in the emirate surged 22.2% in the year through May, according to CBRE. Rentals for single-family homes, known locally as villas, have seen some of the biggest increases and now go for an average of US$96,000 a year.
The rising cost is a headache for policymakers battling to ensure Dubai remains a competitive hub for global companies at a time many employees complain that their rents have soared while their salaries have remained flat.
Dubai was ranked the 15th most expensive city globally for expatriates in Mercer’s 2024 Cost of Living report.
Developers built around 40,000 homes in the emirate last year and are expected to complete construction of an additional 39,000 in 2024. Knight Frank estimates that around 260,000 homes will be built by 2029, with apartments accounting for 80% and villas making up the rest.
So far, the growth in population helped the market absorb the new supply. Roads are jammed and schools are seeing some of the highest enrolment in years. Dubai officials expect the city’s population to surge to 5.8 million people in 2040 from about 3.3 million in 2021.
Still, Gurrapu expects prices to start moderating from next year through 2027 as the bulk of new homes hits the market.
For now, affordability of homes has declined across the city. Many residents who were priced out moved to cheaper locations, and many others have taken their landlords to court to try and resist the increasing rents.
Much of the new sales are within the so-called “off plan market” where developers sell homes ahead of construction and take payments in installments.
For buyers, the new developments offer a cheaper alternative to established locations where values have soared. But those purchases are usually funded by a buyers’ savings and don’t qualify for mortgages.
“The market is becoming extremely expensive for mid-income buyers and that’s going to put downward pressure on it,” Gurrapu said. “On the other hand, rising rents and falling interest rates will likely encourage new buyers.”
For now, Dubai’s developers are riding the market’s resilience, launching projects at a fast clip and collecting money quicker than ever before.
Payment plans, which allowed buyers to complete their purchase sometimes up to seven years after a property is built, are nowhere to be found.
Emaar Properties PJSC, Dubai’s largest developer with around 30% market share, requires buyers to pay the final 15% of the property’s value before the keys are even handed over.
For now, the property market’s breathless rise looks set to continue.
“I truly thought the market would moderate by now considering the massive increases over the past few years,” CBRE’s Khan said. “But now, as I look at the dynamics, I’m starting to believe that we’re unlikely to see much of a drop in the near future.” — Bloomberg
