Dubai Real Estate Market Forecast 2023
May 13, 2023
With rising interest rates across the global and a gloomy outlook on the world economy, investors are right to question the outlook for Dubai's property market in 2023.
Since the pandemic, the Dubai real estate market has been on the rise as both domestic and international buyers have purchased property at a rapid pace. In 2022, sales transaction numbers hit 122,658 - 60% higher than in 2021, reflecting sustained demand for Dubai property in the midst of a global crisis.
In this post, we take a look at the data so you can make an informed decision about whether Dubai is the right market for you to invest in or not.
Who is buying Dubai properties?
There are a large volume of housing transactions each year from both resident and non-resident buyers. With the war in Ukraine driving many Russians out of their home country, there has been a significant uptick in Russian buyers. According to Betterhomes, one of Dubai's largest real estate consultancies, in 2022 non-resident transaction volume was split between nationalities as follows:
Russian: 15%
British: 12%
Indian: 11%
Italian: 7%
French: 4%
Plus Pakistan, Lebanon, China, US, Canada and Kyrgyzstan amongst others making up the rest
For UAE resident transaction volume in 2022, nationalities of top buyers were Indians, Britons, Russians, Italians and Canadians.
How are sale prices performing?
After Dubai (along with most global cities) suffered a significant fall in sale prices in 2020, the trend has aggressively reversed. In 2021, the city achieved a 21% increase in prices followed by a further 11% rise in 2022.
According to Deloitte, the highest price increases were seen in Mohammed Bin Rashid City (+51%, AED 2076 per sq ft), Palm Jumeirah (+47%, AED 4,831 per sq ft) and Business Bay (+27%, AED 1732 per sq ft).
On the other hand, the biggest price declines were seen in Dubai South (-17%, AED 701 per sq ft), Dubai Land (-11%, AED 787 per sq ft), and Dubai Creek Harbour (-4%, AED 1682 per sq ft).
Overall, average prices sit some way below the 2014 market peak (~AED 1200 per sq ft in 2022 vs ~AED 1400 per sq ft in 2014).
Source: Deloitte (2023) - Q3 2022 Dubai Real Estate Prices
How are rental prices performing?
Similar to sale prices, there was a strong increase in rental prices across Dubai in 2022. Overall, rents increased by 19% across all property types in 2022. Villas were slightly above average with an increase of 21% to AED 70 per sq ft per year, whilst apartments were slightly below with a 17% increase to AED 74 per sq ft per year.
How will rising inflation and interest rates affect the Dubai property market?
The dominant themes of 2023 are inflation and interest rates. In general, residential real estate is seen as a good hedge against inflation as rental prices closely track wider price increases. Furthermore, capital prices tend to outpace inflation over the long term, so even owner-occupiers benefit from real estate as an inflation hedge. Many developed economies are seeing consumer price inflation at or above double digits, which is affecting consumer spending and pushing some countries towards recession. The UAE itself has been relatively well-insulated from global inflationary pressure (with cheap energy on-hand from national reserves), though consumer price inflation is still slightly positive which indicates a healthy economy.
Source: Financial Times (2023) - Global Inflation Tracker
Rising global interest rates are another concern for investors as they make borrowing to purchase a property much more expensive vs the historic lows over the past decade. Interestingly, Dubai is positioned uniquely in that more than 70% of property transactions are financed using cash, whereas the opposite is true in markets such as the UK and US (where 70% of transactions are financed using mortgages). This supports the thesis that rising interest rates will have a muted effect on the Dubai housing market.
So what does 2023 hold for the Dubai housing market?
The consensus from the market analysts indicates that the Dubai housing market as a whole is likely to grow over the course of 2023, though it's important to note there is never complete certainty when it comes to the housing market.
As the sales price data shows, buying in the right area is critical to making a successful real estate investment. In same year and same city, it's like some areas will see declines in value whilst others may see an increase. Furthermore, property type is important to consider, as villas and apartments can have significantly different return profiles - even in the same area.
Finally, it's important to note that if you are investing, then you need to look beyond price and calculate the ROI of a property to determine whether it makes for a sound investment. This will show you the return you can make on your initial investment from rental income alone.
Sources: Deloitte (2023), Thomson Reuters (2023), Dubai Media Office (2023), Knight Frank (2022), Financial Times (2023)
How can PropertyData help you?
At PropertyData, our team of specialists can provide the unbiased data and guidance you need to make an informed Dubai property investment decision. For a free consultation, you can get in touch on hello@propertydata.ae, +971 543 112 456 or WhatsApp.
