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Dubai real estate is ‘fairly valued’ says UBS

Dubai real estate value Haus and Haus
Villa living: A UBS report claims Dubai real estate is 'fairly valued', but prices are rising much faster than earnings
  • Average prices up 19.6%
  • Earnings up 4.2% on average
  • 32,000 homes completed this year

Dubai real estate still offers value for money compared with some of its global peers, a new report by investment bank UBS has claimed.

But according to one real estate expert, residents in the emirate could soon be priced out of the market if the ongoing supply and demand imbalance continues.

In the year leading up to August 2023, average sales prices in Dubai increased by 19.6 percent, while average rents in the city rose by 21.7 percent.

“Given strong income growth and a red-hot rental market, with rental growth even surpassing owner-occupied price growth, we see the market as fairly valued,” this year’s edition of the UBS Global Real Estate Bubble Index reported.

It revealed that the housing markets in Zurich and Tokyo were at risk of suffering a bubble. This happens when the price of housing rises at a rapid pace, driven by an increase in demand, limited supply and emotional buying.

Miami, Geneva, Los Angeles, Paris, Sydney, London and Stockholm were all considered over-priced by the Swiss bank’s report.

Nick Maclean, managing director of property consultancy CBRE Mena told AGBI the key issue for the residential real estate market in the UAE is the availability and price relative to earnings.

“I think the level of growth in pricing at the moment is not sustainable relative to how salaries are growing,” he said.

According to Mercer’s Cost of Living 2023 survey, organisations in the UAE have provided an average of 4.2 percent annual merit increase in 2023.

When it came to costs, the survey ranked Dubai second behind Singapore (averaging a 50 percent increase) in terms of increased rental costs over the last year.

“There comes a time when the gap between the growth in rental levels and salary levels will reach breaking point,” added Maclean.

He explained that introducing new stock into the market would help alleviate the problem.

The emirate will have 27,400 apartments and 4,650 villas completed by the end of 2023, according to a report from real estate consultancy Asteco earlier this year. 

This is on top of the reported delivery of 27,000 apartments and 3,930 villas in 2022.

The Dubai Plan 2040, a comprehensive plan for sustainable urban development, estimates that about half-a-million new units will be added to the city over the next two decades to accommodate the growing population.

Simon Quinton, off-plan manager, residential brokerage, Colliers in the Mena region explained that Dubai has an “extremely low risk” of a bubble developing.

This is because of its strong rental market demand, a surge in commercial requests and corporate businesses relocating to the UAE, measures set out in the 2040 Plan and the range of tourist attractions in the emirate.