Dubai residential market may be heading for a correction

Arabian Post Staff

A potential increase in supply could saturate the unfulfilled demand, and lead to lower prices and rents in the Dubai real estate market, S&P said in a report.

It notes that the market expects residential supply stock will increase by about 182,000 units over 2025-2026, given that the large number of properties that were presold over 2022-2023 will be delivered. This is significantly higher than the average of 40,000 units delivered per year over 2019-2023.

However, the real estate inventory absorption rate, among others, depends on the annual growth of Dubai’s population–which is expected to be about 3.5% over 2025-2026–and investor demand. So far though, deliveries in 2024 have not kept pace with those in 2023. Significant delays in delivery, which are not uncommon for the industry–often due to construction capacity constraints–could tighten the market and support upward price trends, at least over the short term. Yet we expect the residential real estate market will balance out by 2026 at the latest, S&P points out.

The report notes that Dubai’s resident population–which excludes the number of workers commuting to Dubai–increased to 3.7 million at year-end 2023, according to the Dubai Statistics Centre. It is projected that it will reach 4.0 million by 2026 on the back of an increasing number of expatriates. Rising rents meant that many residents decided to buy instead of continuing to rent.

Several visa reforms, including to the Golden Visa, have provided stability to residents and attracted wealthy international investors.  Given the expectation of population growth, high prevailing rents, and the high value per square foot, returns on real estate investments in Dubai exceed those in most European countries. Therefore, off-plan sale transactions (primary market) are twice as high in first-half 2024 as the secondary market and buyers are willing to pay a higher price per sq.ft. for new constructions.

Despite geopolitical tensions in the region, S&P assumes a protracted, direct Israel/U.S.-Iran conflict will not emerge. We expect that real GDP growth will remain close to 3.0% on average over 2024-2027, following a growth of 3.3% in 2023, and that Dubai’s GDP per capita will be about $38,000 in 2024.

The government’s economic agenda, D33, aims to attract more investments in real estate.  It focuses on transparency and technological advancements for Dubai’s real estate market. Its goals are to increase real estate transactions by 70%, and multiply the value of Dubai’s real estate portfolios by 20 to UAE dirham (AED) 20 billion. Dubai’s Real Estate Strategy 2033 aims to contribute AED73 billion to the emirate’s GDP and to raise home ownership rates to 33% in 2033. Such initiatives, alongside investment reforms and supportive regulations for businesses, boost Dubai’s real estate market. Dubai’s dynamic economic environment, its reputation as a safe haven, and the low tax regime sustain the emirate’s attractiveness for global investors, S&P notes.

Also published on Medium.

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