The real estate market in Dubai is thriving, attracting local and foreign investors eager to invest in property for profitable returns.
Yet, as demand for Dubai property continues to soar, along with its prices – navigating Dubai’s dynamic real estate market is becoming far more challenging.
In February this year, it was reported that apartment prices had already increased by 0.83 percent compared to January. This brought property prices to an all-time high of US$352.31 per square foot, almost 5 percent higher than the city’s previous market peak in 2014, according to Property Monitor Dynamic Price Index.
While some may be concerned that the market will follow a decline as it did back in 2014, experts are not predicting this to be the case.
“Waiting for lower prices carries a risk, as prices are poised to continue rising” according to Gabriel Tamman, real estate expert at Tribeca Dubai.
“The Dubai landscape is very different today than in 2014. The city and country are attracting a much broader range of investors and residents than in pre-COVID years,” Tamman noted, and doesn’t see a compelling reason for prices to fall.
“Rental price growth has surpassed sale price growth in the last few years and the sale price to income ratio is very healthy” he added. Based on his industry insights, Tamman expects prices to increase moderately this year, around five to 12 percent.
The continued surge in rental prices, along with rising property appreciation values, has led many tenants to take the plunge and invest in real estate themselves. These new investor-tenants are joining property analysts and developers in trying to predict which investments will offer the best return and long-term profitability.
Bigger is better
According to Property Finder, the UAE’s largest real estate website, there has been a significant shift in demand from traditional small-family apartments to the villa and townhouse sectors. Up to 40 percent of UAE home seekers are now setting their sights on villas, with an overwhelming 85 percent of them specifically seeking three-bedroom and larger villas.
One of the driving forces behind the villa ownership surge is the influx of younger buyers.
“We’ve seen a surge in interest from youth when it comes to villa ownership, with 39 percent of buyers under 40 years old in Q1 2024, a significant increase from 31 percent in Q1 2023,” said Mohamad Kaswani, VP of New Projects and MD of Mortgage Finder.
Influenced by the rising trend of rental prices, savvy millennials are recognizing the potential for long-term investments in expansive villa properties.
According to online property platform Dubizzle’s Dubai Annual Property Market Report, Dubai rents saw an increase by as much as 66 percent last year, with villa rentals seeing some of the biggest increases for an average of $88,400 a year.
Market conditions favour villa ownership
The appeal of villa ownership is not limited to the affluent segment. Buyers across various income brackets are seizing the opportunity to upgrade to larger living spaces, thanks to flexible payment plans.
Nearly 50 percent of buyers with a monthly income of less than $13,615 (50,000 AED) have invested in villas since the RERA calculator was recalibrated earlier this year. This is a significant increase from the 37 percent recorded in Q1 2023.
The flexible payment plans combined with low interest rates, an increasing number of tenants are seizing the opportunity for a down payment on a property – as rental renewals offer less affordability. These conditions also make it favourable for homeowners to upgrade to larger living spaces.
In terms of return-on-capital gains (ROCG), last year was highly profitable for villa owners across several areas in Dubai.
Palm Jumeirah witnessed the highest ROCG increase with 41 percent. However, the surge was not exclusive to Palm Jumeirah, as Dubai Hills Estate recorded a significant ROCG increase of 38 percent for five-bedroom villas. Additionally, Arabian Ranches witnessed an increase in the average asking price of four-bedroom villas by 34 percent (ROCG) and five-bedroom villas by 29 percent.
While demand for villas have been popular, recent data has shown that villa launch volumes declined by 30 percent since the beginning of the year.
“Despite the sustained demand for villas, developers remain slower to respond to this surge, largely because of limited land acquisition opportunities,” said Prathyusha Gurrapu, Head of Research & Consulting at Cushman & Wakefield Core.
However, for home buyers seeking to invest in Dubai property in the near future, the overall supply of residential properties including expected delivery figures remain in line with forecasts, pointing to no major headwinds of oversupply, the company said.
Areas in Dubai offering investment opportunities
Home seekers looking for profitable investment opportunities should consider areas beyond the famous and luxurious districts. Kaswani advises home seekers to focus on areas with accessibility to hotspots, including metro connectivity and ease of transport.
“With the blue line project being approved, we can expect more connected areas moving forward. Finding properties that offer these facilities and proximity to public transport can help generate better opportunities for growth and long-term returns on investment,” Kaswani stated.
A recent report by CBRE reveals that properties located within a 15-minute walk of metro stations tend to have higher price and rent increases compared to the broader market. The analysis of over 300 residential or mixed-use properties showed an average increase of 43.8 percent in property prices and a 26.7 percent increase in rental prices around metro stations.
As a result, neighborhoods such as Jebel Ali, Dubai Investment Park, Dubai South, and the surrounding districts, which are connected by the blue line, should see a surge in demand for residential and commercial properties.
High-end residential developments emerging inland, away from the coastal belt, are also seeing surging demand and profitable opportunities.
These include areas such as Dubai Hills, Arabian Ranches, Al Barari, Tilal Al Ghaf, Jumeirah Golf Estates, and Emirates Hills. These projects are prioritizing sustainability, with a focus on energy efficiency and green spaces, making them attractive to high net-worth individuals (HNWIs) worldwide.
Since the beginning of the year a record 402 residential properties were sold above AED 20 Million in Dubai, displaying a 40 percent year-on-year increase. Most of the ultra-prime transactions are concentrated in these inland areas, as well as Jumeirah Bay Island and Palm Jumeirah.
In addition to these areas, Tamman has also seen increased interest for properties in Business Bay among the ultra-rich.
“Business Bay has become incredibly attractive, thanks to new landmarks such as the Lana Dorchester Hotel and future developments such as Casa Canal designed by Killa and the Rings designed by Norman Foster,” Tamman concludes.
Affordability appeal attracts more foreign investors
According to Kaswani, the current housing market in Dubai still offers affordable pricing when compared to other major global cities.
He pointed out “When compared against other major cities like London, Paris and New York, it is possible to find opportunities to get 3 to 3.5 times more for your money in Dubai than in other major cities.”
Despite some views that other housing markets may be more resilient, Property Finder has seen positive developments in Dubai that make it a safer investment than ever before. Kaswani added that “We are performing better than several key global economies, with growing foreign confidence and a larger share of property seekers looking to invest for the longer mile.”
For homeowners considering long-term investments, Property Finder has reported consistent return on investments ranging between 7 and 9 percent year on year. This is not only higher than cities such as London and New York, who typically see yields between 4-6 percent, but signals a market that is maturing rather than experiencing massive fluctuations.