Shortage of Dubai homes forces buyers to go off-plan

• Off-plan sales hit record highs
• More buyers are owner-occupiers
• This reduces risk of a property crash

A shortage of completed homes for sale in Dubai is pushing people to buy off-plan properties, which have hit record highs in terms of units bought and as a proportion of purchases.

Off-plan investors in the emirate have long had to fund their own purchases, but the growing importance of yet-to-be-completed properties may spur more developers to partner with banks to provide mortgages to owner-occupiers.

That increases the risk for lenders, even if a shift in buyer type towards owner-occupiers reduces the likelihood of another crash in Dubai’s property market. The crash of 2008-11 and the more gradual downturn from 2014 to 2020 weighed heavily on the emirate’s economy.

“People are actually purchasing to live in the properties themselves,” says Faisal Durrani, head of research at Knight Frank Middle East. “It’s not speculators.”

Two-thirds of the 176,737 homes bought in Dubai last year were off-plan. The number of completed homes available for sale declined by 17 percent versus 2023. 

For homes valued at more than AED50 million ($13.6 million), the number for sale fell by almost half over the same period, according to Knight Frank.

Speculators buying and selling quickly, or flipping, under-development properties in Dubai helped create the housing bubble that burst in the wake of the 2008 financial crisis, exacerbated by the emirate’s challenges in servicing debt.

Prices rallied from 2011 – only to enter a six-year bear market in 2014, triggered by an oil price plunge that fed into more limited government spending across the Gulf. By August 2020, prices had tumbled 45 percent.

Since then, prices have more than doubled. The Kremlin’s invasion of Ukraine in 2022 gave the market added fuel as more than 1 million Russians fled their country, with many coming to Dubai. 

The number of homes bought last year was 37 percent higher than in 2023, nearly double the figure in 2022 and a five-fold increase on 2020, according to DXB Interact.

Off-plan sales amounted to AED288 billion in 2024, up a third year on year and a record 66 percent of total sales value.

This demand helped ValuStrat’s index of residential capital value hit a peak of 211 in March this year, up from 100 in early 2021.

“There’s less churn of homes on the market than previously, which is another driver of house price growth over the past five years,” says Durrani.

Since 2020 Dubai’s population has expanded by about 500,000 to reach almost 4 million people.

 “Developers are racing to satisfy rising demand for housing at all price points,” says Durrani. “We’ve seen a significant rise in off-plan launches over the last two to three years because developers are trying to satisfy this demand.”

Off-plan sales in March were 7 percent down on February, but 19 percent higher year on year. They represented 70 percent of total home sales, according to ValuStrat.

Normally, off-plan investors pay a 20 percent deposit and further instalments as construction progresses. Mortgages have generally been unavailable for off-plan property, although restrictions are easing. 

Last month Abu Dhabi Islamic Bank began offering financing for off-plan units being built by Dubai’s Damac Properties once they reach 35 percent completion.

“Banks and developers are collaborating to offer off-plan financing,” says Shabbir Malik, a bank analyst at EFG Hermes in Dubai. “Banks tend to offer these products on properties where the developer is well established.”

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Abu Dhabi Islamic Bank had AED79.2 billion of retail loans in the final quarter of 2024. Just over 4 percent of the total – AED3.4 billion – was for real estate financing, according to its latest earnings report. At Emirates NBD, Dubai’s biggest bank, real estate, construction and hotels represent 13 percent of its AED529 billion loan book.

About 30-35 percent of off-plan units are completed late, according to Knight Frank, which estimates that 300,000 more units are scheduled to be handed over this decade. 

That equates to 60,000 a year, considerably higher than the annual average of 36,000 over the past two decades.

Once probable delays are factored in, annual handovers up to 2029 fall to 42,000. 

Based on Dubai’s population growth forecasts, the emirate will require about 39,000 new homes annually so is unlikely to suffer from oversupply, says Durrani.

 “Ignoring any other external risks, it looks like Dubai is building just about enough homes in terms of what the market needs.”