Real Estate

Dubai prime property price growth second highest globally

February 20, 2023, 4:37 AM

Demand for luxury residential property in Dubai remains strong

Growth in 2022 is only behind Miami
Over 2,300 properties worth $10 million sold
Rental gains increase by 23 percent

The growth in residential real estate prices in Dubai prime property was among the highest in the world in 2022, the latest report from Savills reveals.

At 12.4 percent, the UAE city trailed only Miami (25.4 percent) and was markedly above the average 3.2 percent growth seen by the 30 cities tracked in Savills’ Prime Residential World Cities Index.

Despite the increase, Dubai was positioned as the fourth most affordable luxury residential market, at around $730 per square foot.

“There has been a clear appetite for luxury residential developments across the city which has led to a bit of a supply/demand imbalance, thereby pushing property prices higher across prime developments,” Swapnil Pillai, associate director, Middle East research at Savills, told AGBI.

Savills classes prime residential real estate as property priced AED3,000 ($816.88) per square foot and above. Pillai said in some cases this had been pushed to AED4,000 and beyond.

“We are seeing products being launched in the AED7,000 and AED8,000 per square foot range, pulling the overall average of the market towards more luxury and more high end developments,” he said.

Savills reported there were more than 2,300 units sold across Dubai priced above $10 million in 2022, a 75 percent increase compared with 2021.

Pillai explained that buyer demand ranged from “traditional” nationalities such as Indians and UK nationals, to a “significant” number of Russians, Ukrainians, Eastern Europeans and in general the wider European market.

“We see the cost of buying, holding and selling a property in Dubai is around seven percent,” he said. “When you compare that to some of the other global cities like Hong Kong and Singapore, which are around 35 percent, Dubai still offers a better value proposition to some of these globally well travelled high net worth individuals.”

The UAE is home to over 92,600 high net worth individuals – people with wealth of more than $1 million – according to the Henley Global Citizens Report, which tracks worldwide private wealth trends.

In Dubai, the number of households with an annual income exceeding $250,000 is forecast to double to just under 50,000 households in the next seven years, according to Oxford Economics.

“There are some special factors boosting demand for prime real estate at the moment, but what the figures show is that the rise is likely sustainable and fits in with expected longer term trends,” Scott Livermore, chief economist at Oxford Economics Middle East, said.

Dubai recorded a 22.9 percent increase in prime rental gains over the year, well above the global average of 5.9 percent, the Savills research indicates.

Across the world, prime yields averaged three percent in 2022, and moved the fastest in Dubai (+60 basis points (bps), to 5.3 percent), Singapore (+40 bps, to 2.9 percent) and London (+25 bps to 3.2 percent).

Pillai said: “Anecdotal evidence suggests largely that it’s (buying) for end use, but we’re also seeing a lot more of these from an investment perspective.”

He cautioned that, while Dubai appears to have been “insulated” to a large extent from the economic as well as the geopolitical shocks in other parts of the world, persistent global high interest rates could dampen growth in the market.

However, Pillai added the market has matured with regards to the quality of stock on offer, the level of transparency, as well as improved regulations.

“All these factors should sustain the demand levels as well as restrict any overheating and any dramatic drops in prices,” he said.

Pillai said 35,000 new units were launched into Dubai’s residential real estate market last year with a further 100,000 expected to be handed over in the next two years.

Andrew Thomson, partner, head of real estate at Al Tamimi & Company, said the city was moving to “at least” a Tier 2 global financial centre, which will increase Dubai prime property values “significantly” over time.

However, he said the market “is unlikely to operate as it did between 2014 and 2020 again”.