Dubai property: How will prices fare next year?

Dubai’s real estate sector continues to buck global trends

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Published: Tue 14 Nov 2023, 8:00 AM

Dubai’s real estate market is likely to cool down next year as prices decelerate, a new report shows.

According to a report by S&P Global, the sector is likely to expand by five to seven per cent next year. “We don’t expect a profound market disruption. Instead, we think price increases could decelerate and potentially slightly reverse over the next 12-18 months, with price declines not exceeding 5 per cent-10 per cent,” analysts Tatjana Lescova and Sapna Jagtiani wrote in a sector review.

The prices for villas have reportedly exceeded previous peak levels, but apartments are lagging at 10 per cent-20 per cent below previous peaks due to a historical oversupply, the report said.

Dubai’s real estate sector continues to buck global trends. Since 2021, prices have risen at double-digit rates per year, nearing previous peaks, while pre-sales have also reached record highs.

The analysts identified several reasons for the continued buoyancy of Dubai’s property market.

Foreign investors, including high net worth individuals, have helped to sustain strong demand, particularly for prime properties. Strong pre-sales in 2023 contrast with our previous expectation that the market would stabilize. Dubai has remained relatively immune to external pressures from the sluggish global economy, echoing the strength it showed during the pandemic.

Dubai benefits from a diversified economy. It has performed well since the pandemic despite higher funding costs for corporates and lingering inflation, which nevertheless remains below the global average. “We expect economic growth in Dubai to average a relatively robust 3 per cent over 2023-2024, following the post-pandemic recovery that led to average 5 per cent growth in 2021-2022. Supported by the strong economic performance, the government’s fiscal position is likely to strengthen and its debt burden will continue to decline as a share of GDP, in our view. Conversely, we forecast a period of subpar global growth as more heavily indebted economies are hit by higher-for-longer interest rates,” the analysts wrote.

S&P expects continued strong momentum in the hospitality, wholesale and retail, and financial services sectors to drive growth in 2024-2025. In contrast, real estate will likely slow down in the next 12-18 months after another strong year in 2023.

The population has grown by over 2 per cent to 3.6 million according to the Dubai Statistics Center (data as of September 2023). And international visitor numbers are continuing to recover. Dubai International Airport handled over 41 million passengers in the first half of 2023, exceeding that of 2019. Dubai is on track to reach 17 million visitors per year, representing a full recovery in just three years.

As real estate prices continue to rise in Dubai, the risk of a cyclical reversal is mounting, the analysts say.

At the same time, the analysts expect pre-sales to also decelerate to a still-healthy level. In “our view, developers will adapt their offerings to demand. They will likely continue to launch prime properties — including branded residences — for which demand from high net worth individuals should be more resilient. They are also likely to launch smaller units since the price per square foot has become expensive and buyers are starting to downsize spaces. This contrasts with an earlier preference for larger properties following pandemic-related restrictions,” the analysts wrote.