Dubai real estate still playing catch-up after pandemic

Reuters/Christopher Pike

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Dubai’s real estate market is experiencing soaring demand but the supply shortfall from the Covid pandemic is still having an impact and is likely to remain for at least another two years, experts have said.

Residential property prices in the emirate climbed at their fastest rate in almost a decade in the first half of this year, with villas topping previous records set in 2014.

Property consultancy CBRE reported that average residential prices in June increased by 16.9 percent year on year and 57,737 deals took place in the first six months of the year, the highest level on record.

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Betterhomes, one of the largest and oldest real estate agencies in Dubai, reported that it has seen an 82 percent increase in buyer leads this year, while the number of property listings was down by 4 percent year on year in the second quarter.

As a result, the number of interested buyers per listing has risen from an average of 10 in the second half of 2022 to double that, peaking at 30 in April.

Dubai’s population is 3.6 million, up from 3.36 million in 2019. As demand for homes has risen, the industry has been trying to catch up and boost supply.

Betterhomes said the first quarter of 2023 saw 5,000 new homes completed. This rose to 12,000 in the second quarter and 30,000 are expected to be ready for occupants by the end of the year.

It is predicted that 50,000 homes will be completed next year. But Liam Dawett from Betterhomes said that Dubai does not have a good track record when it comes to delivering projects on time. He estimates that a quarter of the homes promised will not be completed on time.

This lag in supply is mainly due to the time lost when construction work and new launches slowed during the pandemic, he added.

“A lot of projects that were meant to have actually launched in 2021 got delayed until about now and we’re just starting to see the catch-up,” Dawett said.

“I would assume that a lot of projects that were meant to be handed over this year have been pushed forward into next year.”

Real estate research firm ValuStrat said 87,661 apartments and 21,653 villas are at various construction stages, with handovers promised by 2028. 

Like Betterhomes, Valustrat was pessimistic about delivery of this new stock, estimating that just over a quarter of new homes promised for completion in the first half of 2023 have been delivered.

Valustrat said the shortfall was particularly tight for large homes in prime seafront locations.

The total number of villa sales dropped by 9 percent in the first half of the year, as the average price rose 15.8 percent to AED7.5 million.

During the second quarter, developers such as Al Habtoor, Damac, Dubai Properties, Meraas and Nakheel unveiled new launches, with Emaar bucking the trend with three new projects.

But Betterhomes's Dawett said this was still below what was evident in the boom era of Dubai property a decade ago.

“Before, they'd be launching projects once a month,” Dawett said, pointing out it was now closer to no more than two per quarter. Those who have launched have reported healthy demand.

“It is incredible how quickly those launches are selling out right now,” he added.

“I think developers are probably being a little more savvy with regards to what launches they're giving and probably trying to make the most out of the market they've got right now.”

Tatjana Lescova, associate director at S&P Global Ratings, in March said the emirate’s property sector had yet to hit its peak. 

Oversupply was a big theme of S&P Global’s real estate forecasts in previous years, but with demand continuing to rise this is not yet the case.

“For now, we’re looking at a more balanced market," Lescova said. "By the time we get to a point of delivery, which will be starting 2024-25, the market conditions may be completely different, and this is when we will feel the oversupply.

“For now, I think this year and next year will not feel [the oversupply] that much.”