Dubai real estate market

For several years now, the emergence of a "bubble" can be identified based on authoritative data from the UBS Global Real Estate Bubble Index. UBS analyzes the real estate market worldwide and names cities that are risky for investment.

14.08.2023
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real estate bubble

Real estate bubble - what are the risks for investors

According to a global analysis, the Dubai market can be classified as one of the most reliable. It has been steadily growing for the past two years due to an influx of capital and population. As long as price levels reach 2019 levels, there are still opportunities for further development. In this article, we will discuss the risks of a bubble forming and what to expect from the Dubai real estate market.

Like the global economy, the real estate sector is cyclical: downturns are followed by upturns and vice versa. This leads to an increase in cost and demand. Investors seek to understand how long real estate will be in demand in order not to lose money.

However, constant price growth does not always confirm the well-being of the market. If the cost is not substantiated, a real estate bubble is formed on the market, which will eventually have to burst. This causes an outflow of buyers, real estate prices fall, and investors risk losing their invested funds.

Another reason for the growth of the real estate bubble is the increase in unpaid mortgages. Due to the growth of interest rates, there is instability in the real estate markets. Purchasing demand falls because the conditions for mortgage loans become unfavourable. In this case, it is unprofitable for investors to invest funds in the purchase of real estate - investment returns will not cover the costs of paying off the mortgage.To understand if the possibility of a bubble threatens the Dubai market, attention must be paid to analytics. Many world agencies analyse statistics and create their own rankings. One of the most well-known is the UBS Global Real Estate Bubble Index.

Real Estate Market Analytics from UBS Bank

According to the UBS Global Real Estate Bubble Index report, the potential for growth in Dubai's real estate sector is far from exhausted, thanks to the influx of foreigners and their investments.

To conduct its research, UBS analysed residential real estate in 25 in-demand megacities and compared the following five factors:

  • what the cost of real estate is in relation to the buyer's income;
  • what the ratio of the purchase price is to the cost of renting it;
  • how the mortgage-to-GDP ratio changes;
  • how the construction-to-GDP ratio changes;
  • the cost of real estate in the city compared to the price in the country.

Cities that score more than 1.5 points on this index are considered an unsuccessful place for investment, as there is a high risk of a bubble appearing. Dubai came in at a minimal 0.16, which is the second lowest on the list with Warsaw being the lowest and receiving a score of 0.15. This means that the market in the emirate can be considered one of the most reliable. It has been steadily growing for the past two years due to the influx of capital and population. While the price level has reached 2019 levels, there are still opportunities for further development.

UBS analysed the current situation in the Dubai real estate market and made the following conclusions:

  1. The cost of real estate in Dubai has increased by approximately 10% over the past year. The most significant growth is demonstrated in the primary housing market.
  2. After 7 years of decline, the real estate market has been steadily growing since 2019. However, the sector is still 25% below the historical peak of 2014.
  3. Factors that influence the growth of the real estate market include an increase in oil prices and the rapid recovery of the UAE economy after the COVID-19 pandemic.
  4. The real estate market in Dubai will continue to grow thanks to the influx of professionals from different countries with a high level of income, as well as the beneficial visa policy by the government.
  5. The cost of renting property in Dubai has increased by an average of 22%.
  6. The rise in housing prices will remain at a high level but will gradually slow down.

Therefore, investing in Dubai now is more profitable and safer than in other major cities. The market maintains constant growth, but property prices in the emirate are still significantly lower than in other regions. For example, the cost of exclusive apartments in the emirate is almost 7 times lower than in Hong Kong and 5.5 times lower than the cost of similar properties in London. At the same time, the standard of living in Dubai and the quality of real estate are often higher than in other megacities.

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Government Influence on the Real Estate Market

Since 2022, the emirate's real estate market has been showing good growth after a decline from 2019-2021. In the first half of 2023, the number of transactions increased by almost 42% compared to the previous year. In June 2023, a record number of transactions was recorded in one month. All of this is due to the continuing influx of expats and favourable conditions for foreign investors and businesses.

To turn Dubai into one of the best real estate markets in the world, the government is using innovation and the latest technologies. Dubai is one of the first to implement digitalisation in the public sector; it is already possible to buy property with digital currency. This approach will help protect data, strengthen trust, and create comfortable conditions for living and business.

Trends from 2021 show that buying property for cash is becoming increasingly popular instead of taking out mortgages. In Dubai, this figure is as high as 70%, and there is no reason to expect any fluctuations.

In Dubai, buyers can fully dispose of their property and receive favourable conditions of purchase. The authorities are constantly improving living conditions, introducing new types of residency visas, and expanding programs to attract specialists in various fields.

There are no issues with making payment here: it is incredibly easily to transfer money. Banks and developers will not ask you to confirm your sources of income, plus payment can be made remotely or by a third party. In addition, property is passed on through inheritance.

Important! The authorities of the emirate do not publish real estate registry data. Therefore, confidentiality is considered one of the reasons why the Dubai real estate market is in demand.

Dubai attracts wealthy individuals and capital due to its high quality of life. When choosing to relocate, all expats are interested in renting or buying real estate. According to a 2022 report from the experts at InterNations, the UAE ranked sixth in the list of the best countries for expats to live and work.

The country has risen 12 points from the previous year. The ranking takes into account indicators such as the education system, level of medical care, safety, degree of infrastructure development as a whole, and taxation. The latter is particularly attractive to expats in the UAE. There is no income tax in the country, and the corporate tax, which came into effect in 2023, is one of the lowest in the world at 9%.

Today, Dubai is a metropolis that offers many opportunities for foreign investors, such as obtaining a Golden visa, favourable conditions for doing business, access to the markets of other countries, no taxes, low operating costs, high rental income, financial investment security, and more. Such trends and comfortable conditions will continue on in the coming years and will allow for a stable return on investment in the emirate's real estate.

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Marina Mikhalenko

Senior Property Consultant – Metropolitan Premium Properties

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