Dubai’s real estate market is setting records. Investors, developers, and other market participants remain positive despite the threat of a global recession. Let’s look at the figures that make them so enthusiastic.
- Results of Q1 2023
- Dubai’s luxury real estate market
- A brief overview of the economic situation
Results of Q1 2023
In the first three months of this year, 30,898 transactions were made in Dubai’s real estate market, which brought the sellers a total of more than USD24 billion. Transaction volume was up 50.6% versus Q1 2022. Sales revenue showed an increase of 60.5% over the same period.
Prices per square metre of residential property in the Emirate have reached an average of USD3,770. Off-plan apartments and move-in ready villas in Dubai performed best. We are talking about an increase in the cost by 10.5% for off-plan apartments and by 3.7% for ready villas. Ready apartments and off-plan villas dropped in prices by 5% and 32% respectively compared to the same figures in 2022.
It is worth noting that the drop in prices for ready apartments is due to consumer demand switching to the rental market, which will be discussed below.
Growing popularity of apartments
Apartments are gaining more and more popularity among buyers and investors, primarily in off-plan projects in Dubai. For investors, they are a valuable asset, while for ordinary buyers, they are a cheaper option compared to other offers on the market. What’s more, new residential properties are more economical in the long run due to superior technical characteristics: greater energy efficiency, better temperature control, and so on.
In general, the apartment market accounted for almost 23,000 transactions made in Q1 2023. Collectively, these transactions generated USD12.2 billion, which is up 72% year-on-year. The difference is especially impressive when compared to the growth in the villa segment over the same period, which amounted to only 2% year-on-year. In total, about 5,700 transactions for the sale of detached houses were completed in Q1.
Impressive relative growth, on a par with apartments, was shown by sales of land plots and commercial properties: about 1,400 and 890 transactions with a year-on-year increase in transaction volumes of 77.4% and 19.8% respectively.
As is clear from the situation described above, the off-plan segment dominates the market. Up to 60% of all real estate transactions were accounted for by off-plan properties. The same segment made up 63% of the total revenue from real estate sales in Q1.
Consumer demand for both apartments and villas has long been shifting towards the rental market. Thus, the median rental rate for apartments in Dubai increased in Q1 by 16% year-on-year, reaching USD13,600 per year. The median rental rate for villas increased by 22% over the same period to USD38,100 per year.
Downtown Dubai and the large commercial hub Business Bay that neighbours it are in the greatest demand. Downtown is worth a special mention, because over the past year, rates for new leases in the district increased by 13.6% year-on-year, and for renewed leases, by almost 6.9%.
The most popular districts in Q1 2023
The highest Q1 figures were shown by the previously mentioned Business Bay. It knocked Jumeirah Village Circle (JVC) out of first place in total sales, and the district is on par with Dubai Marina in sales of specifically ready properties. Commercial properties are also popular in Business Bay, although it has a competitor in this segment in the form of Al Merkadh.
In the period under review, Business Bay recorded almost 2,400 real estate transactions for a total of USD490 million. This allowed it to get ahead of JVC. In the “stand-off” with Dubai Marina, the district is the leader in the number of ready property transactions. A total of 1,224 properties were sold here in Q1, although it is inferior in their total value: in Dubai Marina, it amounted to USD844 million against USD571 million in Business Bay.
Meanwhile, JVC remained the sales leader in the off-plan apartment segment with 2,361 transactions. Dubai Marina ranked first in sales of ready apartments, recording 1,212 transactions in January to March.
The most villas were sold in DAMAC Lagoons and Emirates Living. The former set the record for off-plan villas with 1,351 properties sold, while the latter took first place in sales of ready villas with 167 properties sold.
The growth in sales of properties in Dubai pertains to a significant increase in the number of mortgage loans taken out from banks in Dubai. About 8,890 loans were obtained in Q1 of the year for a total of USD8.5 billion. The number of loans increased by 62.9%, and the total value of loans, by 24.6% year-on-year.
There are two things about the mortgage market worth pointing out.
- First, the luxury segment is practically independent of the credit policy set by regulators and rising interest rates, since the vast majority of buyers and investors in Dubai’s market use their own funds for transactions.
- Second, this observation largely applies to the real estate market of the Emirate as a whole. Despite the growth in mortgage loans, no more than a third of buyers and investors in the market use mortgages to finance purchases. Some sources indicate that we are talking about no more than 25% of buyers.
Dubai’s luxury real estate market
The luxury segment of the Emirate’s real estate market remains the most stable this year. Demand is growing for the highest price range and properties in waterfront communities. Throughout Q1, 88 properties were sold at a price of USD10 million and higher, which in total brought in more than USD1.6 billion.
That said, the super-premium property segment saw a decrease in the total amount of sales by 21.72% compared to the figures of Q4 2022. In total, USD3.8 billion was generated. Together with the revenue of other segments of the premium market, this accounts for 21.7% of the total value Dubai’s real estate market made in Q1.
Moreover, it is worth noting that although the total revenue from luxury real estate sales decreased quarter-on-quarter, the price of each individual property increased by an average of 27.4% over the same period.
Apartments also remain best-selling properties in this segment. Premium and ultra-premium apartments accounted for 1,584 purchase and sale transactions, which in total made up USD2.6 billion or 66% of the total value of all transactions in the luxury segment of the Emirate’s real estate market.
Palm Jumeirah, Downtown Dubai, and Jumeirah Bay have become Dubai’s most successful districts in the luxury real estate market. Collectively, they “earned” USD2.4 billion. The most expensive single purchases were made in Jumeirah Bay Island, Palm Jumeirah, and Al Wasl.
Demand for luxury properties is driven up by super-wealthy buyers from Europe, Russia, and, more recently, China. However, this also leads to some problems. The surplus of wealthy buyers in general makes living and housing in the Emirate more expensive. This could be a problem for the rest of the country’s expats, who make up almost 90% of the population.
Most of them are working class, professionals, and skilled individuals who came to the Emirate to work. There are increasing reports that these people are contemplating leaving the city, where many ordinary amenities are becoming luxuries. However, these trends are not likely to impact Dubai’s economy and real estate market very soon—even if the government does not turn its attention to this issue.
A brief overview of the economic situation
As we have mentioned earlier, the cost of living in the Emirate is on the rise and is causing many expats in Dubai to consider moving to other countries. However, this is not an issue as of now. So far, the UAE as a whole, and Dubai in particular, ranks first in popularity among foreign workers in the GCC (Gulf Cooperation Council) region.
This is a useful achievement given that the era of oil-driven growth is almost over, as indicated by OPEC’s (Organization of the Petroleum Exporting Countries) recent decision to cut oil and gas production and supplies beyond an already low limit. Without a rapid recovery in Chinese production—which we are not seeing yet—there is nothing for oil-supplier countries to hope for.
In this reality, the non-oil sectors of the economy are beginning to play an extremely important role. For Dubai and the UAE, they are the real estate market, the construction sector, tourism, IT, healthcare, and industrial production. One of the development pillars for the Emirate will be Expo 2020. Even though the World Expo ended back in the spring of 2022, its impact is lasting and will provide Dubai’s economy with another USD42.2 billion and more than one million new jobs until 2042.