Dubai’s real estate market continues to shine as an attractive investment destination in 2024, offering investors the potential for strong capital appreciation and lucrative rental yields. Here are some insights we’ve gained into the market for 2024.

Capital Appreciation and rental yields in Dubai

According to data from the Dubai Land Department and various other sources, Dubai’s real estate market has seen robust capital appreciation since 2021, right around when we started to see the light at the end of the tunnel from COVID. Ready apartments saw a year-over-year return on investment of 36.1% in 2023[1], while ready villas achieved a return of 38.5% which is around 3% appreciation per month. This is a stark difference from the global average of 3-5% increase in property prices per annum which can be seen in New York City where the “median sale price of all co-ops and condos was $1,156,391 in the fourth quarter of 2023, up 5.1% from the year before.”¹

The data also highlights specific areas that have experienced significant rental spikes, for instance, properties in JLT saw average rents increase by 40% YoY in 2023 while Dubai Marina rents grew by 26 [2]. Other areas of Dubai that have demonstrated strong rental performance are Emirates Living, where rents grew by 28% YoY in 2023[2] and Downtown Dubai experienced a 26% YoY increase in rents [2]. These figures suggest that investors in these areas can expect to generate substantial rental income but this isn’t beneficial for tenants. These rents however are regulated very strictly by the Dubai Land Department and we’ve written a whole article about this here.

Risk of a Bubble

According to the image above, the UBS Global Real Estate Bubble Index 2021 shows that Dubai’s real estate market is not at risk of being a bubble. The index assigns a score to different cities’ housing markets, with a score above 0.5 indicating a risk of a bubble. Dubai’s score is -0.57, which is in the “undervalued” category.

There are a number of reasons why Dubai’s real estate market might be less susceptible to bubbles than other markets. Dubai’s economy is diversified and less reliant on oil than it once was. This could help to insulate the market from shocks in the oil price. Additionally, the government has taken steps to regulate the market and prevent excessive speculation. Overall, while there is always some risk of a bubble in any real estate market, Dubai’s market appears to be on a more solid footing than some others.

Demand and Supply of real estate

The city’s strategic location, business-friendly environment, and visionary infrastructure development make it an attractive destination for both residential and commercial investments.

Investors can choose from a diverse range of properties, including apartments, villas, townhouses and commercial spaces, catering to various investment goals and lifestyle preferences. Whether seeking rental income, capital appreciation, or a vacation home, Dubai’s real estate market presents a compelling opportunity. With the UAE attracting over 4,000 millionaires in 2022 (this number has gone up to 7,000 in 2024), Dubai has no shortage of capital inflows and businesses being started in the city and therefore the demand for residential and commercial real estate remains steady and robust.

Dubai Real Estate: Strong Growth and Potential Soft Landing

Dubai’s real estate market has been a beacon of growth since December 2020, with residential property prices reaching a new high in February 2024. This robust performance is highlighted in a recent UBS report, which provides a cautious yet optimistic outlook on the future of Dubai’s real estate sector.

Growth and Current Momentum

The report emphasizes the strong momentum in Dubai’s residential property market, supported by consistent price increases. The data indicates that Dubai’s real estate market has been one of the top performers globally, driven by high transaction volumes and escalating property values. This rapid growth has been fueled by the city’s strategic initiatives, infrastructure development, and its position as a global business hub.

Potential Risks and Soft Landing

UBS does however caution about potential risks on the horizon where two primary concerns are highlighted:

1. Stress in Payments: Issues related to off-plan developments could pose a challenge, particularly if market momentum continues at an unsustainable pace. Putting down 10% to book a property is not capital intensive but as these payments stack up month after month and if the momentum of the market slows down, we could see a correction in terms of prices.
2. Excessive Market Momentum: There is a risk of excessive price growth leading to a correction. UBS suggests that a moderate correction of 10-15% is likely in the base case scenario, reflecting a soft landing rather than a severe crash. The report notes that a larger correction (over 20%) would require significant global events such as a global recession or a drastic drop in oil prices, neither of which are anticipated in the current analysis.

Upside Risks and Geopolitical Factors

The potential for geopolitical events to influence the market is also considered. Historically, geopolitical tensions have triggered safe-haven inflows into Dubai’s real estate market, providing a buffer against downturns. Additionally, the potential launch of gaming facilities in Dubai could create new investment opportunities and drive further demand.

Conclusion

Dubai’s real estate market demonstrates strong growth potential, underpinned by robust capital appreciation and attractive rental yields. While there are risks associated with rapid price increases and payment stress, the market is expected to experience a soft landing with moderate corrections. Investors should remain vigilant of geopolitical developments and other external factors that could impact market dynamics. Overall, Dubai remains an attractive destination for real estate investment, offering promising returns and a high-quality lifestyle. The data-driven trends in capital appreciation and rental yields, coupled with the city’s robust economic landscape, booming tourism sector, and safe and luxurious lifestyle make it an attractive destination for those seeking profitable investments and steady returns. As always, keep checking Viewit or subscribe to our newsletter for in-depth analysis into Dubai and all it has to offer.

Citations:

[1] https://www.linkedin.com/pulse/roi-capital-appreciation-dubai-real-estate-dennis-gitonga-uvppe

[2] https://www.keyonerealtygroup.com/blog/dubai-real-estate-market-a-great-investment-opportunity-for-2023/

[3] https://www.cityscape-intelligence.com/investment/investing-dubai-real-estate-attractive-opportunity

[4] https://property.constructionweekonline.com/indian-investors-drive-dubai-real-estate-boom/

[5] https://think-properties.ae/why-invest-in-dubai/

• UBS AG Dubai Branch Report, 6 June 2024
• Reidin, February 2024 Data on Residential Property Prices

1. https://edition.cnn.com/2024/01/03/economy/manhattan-home-sales-real-estate/index.html
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