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The real estate market is often subject to contradictory situations. More specifically, the real estate market in Dubai is no different and has often observed this same pattern. For instance, when the cost of a middle sector property in a large business center is equal to the cost of a premium-class property in a secluded, picturesque and independent cottage community.
Furthermore, this pattern has been experienced by the luxury real estate sector in Dubai for many years now. However, in 2020, it managed to drop to a record low. This resulted in not only unprecedented change but unpredictably too. Our understanding of life became skewed when for instance, expensive living became unusually cheap.
So in this article, we’ll be examining the reasons for the development of this current trend. Also, we’ll be looking at the current situation in the luxury real estate sector.
Content:
- Over 60,000 new properties are expected to emerge in Dubai in 2022
- Cost reduction for villas can be expected by up to 3-4%
- Market sectors have passed the critical state
- During the first half of the year, property was sold for $ 770 million
- We will assist you with your choice of luxury real estate in Dubai
Over 60,000 new properties are expected to emerge in Dubai in 2022
In May 2021, Al Jazeera published an interview with Faisal Durrani, Head of Middle East Research at Knight Frank.
The KF agency conducted a survey of the world's largest real estate markets. Dubai made it to the top 25 on this list. Although, Dubai shared this position with Buenos Aires, based on trends in the luxury real estate sector.
As a result, the real estate market of the Emirate showed significant growth rates during the first five months of 2021. The profit reports of developers amounted to several hundred percent. The indicators of completed projects were at around 62,000 units. And already, for 2022, the number of projected projects is estimated to be 63,500.
Since 2009, this has become the highest construction rate in Dubai’s real estate market. The irony of the situation is that due to the significant volatility of supply and demand in the market, Dubai’s luxury housing sector has been on the decline. In fact, since 2008-2009, the market sector of luxury housing in Dubai began to experience a rapid decline and this has been continuing for more than ten years.
However, one should not think that the decline in prices for luxury real estate will only lead to a worsening of the situation. Particularly, since there are times when we can observe an increase. Even if this increase is not high enough to sufficiently strengthen the market.
Furthermore, when looking at the numbers, we can say that currently, one can purchase more than five times more luxury real estate for one million US dollars in Dubai than, for example, in London or New York. So right now, it is possible to purchase 42,356 houses in the Emirates for a price of $ 1 million.
Following this then, one should also be aware that luxury residential properties worth $ 1 million could fall in value by 2% in 2021. This would complement the previous decline in 2020 of 6%.
Cost reduction of villas can be expected by up to 3-4%
According to Durrani, we should expect a decrease in the cost of residential real estate by about 2-3% and a decrease in the cost of villas by 3-4%. So according to these figures, the general downward trend will in all likelihood continue in this way for the next few years.
However, it was estimated that over the next two years that there would be a slowdown in the rate of decline where property values are concerned more likely to occur in the event of a further decrease in restrictive measures on movement between countries. Alternatively, property values might increase in demand for the moment due to the postponed Expo 2020.
Also, it should not be forgotten that the situation regarding cheap luxury real estate is quite conflicting. On the one hand, right now is the most profitable time for investors to purchase luxury real estate for the future at a record low price. While on the other hand, if the rise in prices becomes difficult to predict in the coming years, one won’t be able to confidently say when the timing of this acquisition will pay off or whether it will even be enough to cover one’s investments.
In any case, by May 2021 this was what the situation had been like. However, by early July, circumstances had unexpectedly changed.
Market sectors have passed the critical state
By the end of June, rating agencies had started reporting the first signs of positive information with regards to statistics and forecasts in the real estate market. Additionally, they also predicted an impressive increase in the real estate market by the end of the year. It should also be noted that all market sectors have passed the critical stage, this includes the premium real estate sector.
With all of the negative conditions and effects (particularly as a result of the COVID) that took place just a couple of months ago, it was assumed that the most positive results we would see (specifically with regards to the recovery of the economic sector) would be gradual and take about 3-4 years.
Following this then, the leading developer of the Emirate, Emaar Properties, received this good news – regarding the positive dynamics of the real estate market, as well as, a credit rating from S&P Global Ratings. The ratings agency confirmed that the overall outlook for Dubai’s real estate market had changed from negative to stable. It also noted that luxury real estate is one of Emaar’s main sources of income. As such, an increase in the company's income is expected along with a positive and more stable change in Dubai’s real estate market.
As for certain market indicators:
- Despite restrictive measures, due to the coronavirus pandemic, in the first half of 2021, more than 8,000 new investors emerged in the Dubai market.
- New migration reforms and plans by the state and private corporations up until 2040 have already caused an increase in the number of FDI and highly skilled workers from abroad.
- Ahead of the World Expo 2020 in Dubai, the ratings agency, S&P Global has provided a positive outlook for the real estate sector with a growth in revenue of 30% by the end of 2021.
- In terms of overall GDP growth, it is expected to be around 3.5% this year and 2.5% in 2022.
- The positive dynamics of prices and sales were recorded for both villas and townhouses. In the next couple of months, apartments are expected to join this trend too. What’s more, the total price increase in the Emirate has reached 8.3% when compared to that of 2020, which was 10%.
- Buyers and investors began to shift the focus from last year's leading off-plan real estate (real estate under construction) to completed real estate, this includes luxury real estate.
Property Monitor, CEO Zhann Jochinke expects this trend to continue. So while growth won’t be high for the long-term, at least stability can be guaranteed. Also, in some areas of Dubai, there is already an outstripping demand situation. As such, sellers now have the opportunity to significantly increase their prices.
It should be noted that these are coastal and resort areas for the most part.
During the first half of the year, property was sold from $ 770 million onwards
Let us have a closer look at what the data has to show us with regards to the increase in demand in the luxury real estate sector.
During the first six months of this year, more luxury properties were sold than during the whole of 2020. So this data gives us an idea of the size of the market at those specified times. That is to say, in the first half of this year, 22 luxury properties were sold, which amounted to a total cost of $ 770 million. Whereas, for the whole of 2020 only 19 properties were sold.
Although, luxury real estate for $ 10 million is becoming the norm. That being said, this is the highest rate luxury real estate has been at since 2015. So these developments in Dubai, which have always been kept away from rising price trends, show that globally (not just in Dubai) the luxury real estate sector can grow rapidly.
Furthermore, Knight Frank supports and commends such changes in demand by pointing out the successful fight that the Emirate government has put up against the COVID-19 pandemic. Especially, in light of the reduction of restrictive measures and the settlement of the epidemiological situation.
In addition, the Palm Jumeirah district has risen to the first position in the popularity ranking. Here, the leading properties in sales are occupied by villas, which cost more than $ 30 million.
And in more news regarding the real estate sector, there is the possibility of price increases in the near future. Proof of this can be seen in the actions of landlords, as well as that of the upcoming rental rate freeze which is scheduled for the next three years. More to the point, the situation is as follows.
The main real estate agency of the Emirate, Dubai Land Department (DLD) announced in April this year that they have plans to freeze rental rates in the city for the next three years, starting in the summer of 2021.
However, there is a problem where this is concerned because the DLD does not indicate exactly which sectors will be frozen and which sectors will benefit from this. It is also not known whether this has to do with real estate in general or with certain types of real estate.
As a result of this and given the fact that rental income is the main source of income in the Dubai real estate market, many have immediately started to renegotiate their contracts at higher rates. In this way, they hope to at least gain a foothold in the sector in the coming years.
So in just a few months, from January to May 2021, the growth in rental rates has increased from 9,500 to 15,000 dollars. What’s more, this figure continues to grow rapidly.
We will assist you with your choice of luxury real estate in Dubai
Over the years, prices for luxury real estate have steadily been declining. This was further cemented in 2020 when a record low was reached in the sector. Nevertheless, we’re halfway through 2021 and we can already see a large number of prerequisites occurring and making a change in the trend.
So the luxury real estate sector has proven to be very profitable, even though overall, it doesn’t cover much.
Furthermore, since there is still time to purchase luxury real estate, we would like to urge investors to seriously consider it. Especially, at the current low prices they’re at.
Our company specializes in offering comprehensive real estate services, some of which include appraisals, property selection, as well as, consultation and advice. What’s more, one of our good partners, Emaar Properties, is one of the leading developers in the luxury real estate sector. So if you’re an investor or buyer looking to purchase luxury real estate and you require assistance, please reach out to us. We’re more than happy to provide you with all the support you need.
