Dubai’s rich switch from home buyers to investors

Alamy via Reuters

• Rich home buyers drop by half
• Prime areas set to outpace market
• Supply failing to keep up

Wealthy foreigners are increasingly eyeing luxury Dubai homes as investments, driven by a dearth of available real estate at the high end of the market.

This is a shift from last year, when affluent buyers primarily saw purchases of homes in the emirate as main residences, or vacation or retirement homes, Knight Frank said in its second annual Destination Dubai report.

Only a third of the 300-plus global high net worth individuals, with an average fortune of $13 million each, interviewed for the report said they planned to buy Dubai properties for personal use. That is down from two thirds a year ago, according to Faisal Durrani, head of research for the Middle East and North Africa at the estate agency. 

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“The appetite for investing in Dubai is still exceptionally high, and that appetite rises with the level of personal wealth,” Durrani said.

The report found that the absolute richest of investors, those with a net worth of more than $15 million, continue to show more interest in owning primary or second homes in the emirate than those in the income brackets just below.  

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That may be because the more a property costs, the lower the yield, given that at the top level of transaction much of the possible future appreciation is already priced in, Imran Sheikh, a partner at BlackOak Real Estate in Dubai, told AGBI.

“When you’re looking at ultra ultra luxury, it doesn’t make sense [as an investment],” Sheikh said.

“You’re not going to see people who are jumping in to buy property here for a 4 percent yield when they can get the same in London and Paris and New York.”

Knight Frank expects Dubai’s overall residential market to see price growth of 3.5 percent this year, with prime areas increasing at a slightly faster 5 percent. 

After two years of dramatic price jumps, a 5 percent rise would still put Dubai’s most sought-after neighbourhoods right behind Auckland and Mumbai as the third fastest growing in the world in 2024, Durrani said.

“It's very difficult for us to say how many weeks, months, years are left before price growth slows or declines, but there are no cliff-edge moments that we foresee right now,” he said. 

In Dubai’s favour are robust economic and population growth projections and the fact that top-end real estate in the emirate still offers more per dollar than that in many other world cities, with $1 million buying four times as much space in Dubai than in Hong Kong, and three times more than in London, New York or Singapore. 

In addition, supply is failing to keep up with demand, particularly in prime areas typically targeted by the uber wealthy, which Knight Frank defines as seeing at least 10 percent of transactions priced above AED10 million ($2.7million).

Those are Palm Jumeirah, Jumeirah Bay Island, Emirates Hills and, as of this year, Jumeirah Islands. 

Only 368 homes are currently under construction in those four areas, Knight Frank says. 

Among existing properties, even in the top price range, homes of the quality and finish that the wealthy normally target are especially scarce, as, increasingly, are beachfront ones, according to Imran Sheikh at BlackOak Real Estate.

“What has started to happen is a shift along the coastline closer to Abu Dhabi,” Sheikh said.

At the revamped Palm Jebel Ali project last autumn,  the first few hundred villas that were made available for purchase were quickly snapped up by eager buyers.

Further to the north, the long-stalled World Islands development is also picking up again as available waterfront plots dry out elsewhere in the emirate. 

Knight Frank also found that the ultra wealthy were increasingly keen on areas that, even if not on the water, offer an abundance of green spaces and top-notch healthcare facilities.

Dmitriy Starovoitov, founder of Almal Real Estate Development, told AGBI that the firm raised the budget for its luxury project in Ras Al Khaimah’s Al Marjan -- The Unexpected Al Marjan Island Hotel & Residences -- from $100 million to $280 million. 

“This increase reflects our understanding of the high appreciation for quality among buyers and the promising potential of the Al Marjan location,” Starovoitov said.

“We decided to make extra efforts to ensure that the product we offer can be considered a landmark in the region.”

Starovoitov added that investors from Turkey, Western Europe, the UK and Saudi Arabia have shown particular interest in acquiring even units “in bulk” in this project, while buyers from Iran and the GCC are especially keen on the boutique developer’s under-construction villas in Dubai’s La Mer.