The Dubai real estate market in 2023 has been marked by unprecedented achievements, including setting records for the most expensive property sold, the fastest-selling project, and the highest rental rates. These milestones have raised concerns among some investors about the potential for a market ‘bubble’. However, this perspective overlooks critical historical and global data that contextualize Dubai’s real estate landscape.
The UBS Global Real Estate Bubble Index identifies Dubai as one of the major cities with the lowest risk of a real estate bubble. Moreover, it ranks Dubai alongside São Paulo and San Francisco for offering properties at ‘fair value’. This contrasts with cities like Zurich, Tokyo, Miami, and Munich, which are deemed ‘at risk’ or significantly overvalued. This valuation disparity is driving investors from these higher-risk cities to consider Dubai as a more secure investment destination.
When compared with other major cities, Dubai’s real estate market remains significantly undervalued. The quality of construction in Dubai is exceptional, and when considering the value for money, it becomes evident why Dubai is a preferred investment choice over cities like Hong Kong, New York, and Singapore. For instance, with $1 million, one can acquire approximately 105 square meters of property in Dubai, significantly more than what the same amount would fetch in Monaco, New York, London, or Berlin.
As of November 2023, the Dubai real estate market has experienced consistent growth for 11 consecutive quarters. This growth, while substantial, has primarily served to recover the market from previous lows, bringing it close to its 2014 levels, albeit still 10-15% lower when adjusted for inflation. This suggests a substantial potential for further growth. Projections from Khaleej Times anticipate a continued upward trajectory in Dubai’s real estate market over the next five years before a potential stabilization.
What’s driving the growth?
A key driver of this growth is the balance of supply and demand. In the past, Dubai grappled with an oversupply issue, but this trend has reversed. Current population growth in Dubai exceeds 100,000 annually, while new property developments are not keeping pace. Data from Property Monitor indicates that around 142,741 properties are expected to be completed by the end of 2027, averaging about 35,685 properties per year. This supply shortfall, combined with robust salaries and tax-free income, supports strong rental market growth without pricing renters out of the market.
The surge in population is partly fueled by the influx of new businesses in Dubai. In the first half of 2023 alone, over 30,000 new businesses were registered in the emirate, a significant increase from the previous year.
Can the market sustain this trajectory?
The sustainability of this growth trajectory appears positive. Factors such as business growth, population increase, and the concentration of wealth (with over 67,000 millionaires in Dubai) all contribute to a stable market. Notably, a large proportion of property owners in Dubai hold their properties debt-free, rendering the market less vulnerable to interest rate fluctuations, unlike markets like the U.S. where a higher percentage of properties are mortgage-backed.
The cost of living in Dubai, when compared with other major cities, is more affordable, and the tax-free income greatly enhances residents’ purchasing power. This financial advantage is evident in everyday expenses, such as dining and rental costs, which are comparatively lower than in cities like London.
Where are all the buyers coming from?
The buyer demographics in Dubai are diverse, with the largest number of buyers coming from India, followed by the UK, and then jointly by Lebanese and Egyptian buyers. Contrary to some claims, Russian buyers rank fifth. The shift in investment preferences among UK buyers, post-Brexit, from European countries to Dubai, coupled with the high number of British tourists visiting Dubai annually, underscores the growing interest of UK investors in the Dubai real estate market.
Looking ahead to 2024, areas such as JVC and Meydan are emerging as hotspots in the Dubai real estate market, reflecting the ongoing dynamism and potential for investment in this vibrant city.
To talk to our team further about the Dubai real estate market in 2023 or to explore the options available to investors please do get in touch.