UAE real estate in the new reality: Q2 2022 market review

Despite the general global geopolitical instability and the lingering implications of the pandemic, the UAE remains a haven for investors. The activity at the beginning of 2022 confirmed analysts’ optimistic forecasts from late 2021 and continued last year’s positive trends in the market of real estate in Dubai and the UAE as a whole.

We will look at the specific case of Dubai to find out why foreign buyers are still active in this market and how successful the second quarter of 2022 was for the UAE real estate sector.

Content:

• The current situation in the real estate market
• Sales volumes
• Purchased properties
• Statistics on mortgage loans
• Rental yield
• Forecasts
• Why invest in the UAE now
• New preferences for foreigners
• Green Visas for foreigners
• Visiting the country and opening a business
• Conclusion

The current situation in the real estate market

Dubai’s real estate prices have been growing by more than 1% month-on-month for three consecutive months. The growth rate of property value is moderate but consistent, evidencing a healthy trend. In April, real estate value increased by 0.76%, and in May, by 0.74%. According to the Dynamic Price Index (DPI) from the analytical agency Property Monitor, the average value of Dubai properties is currently AED 1,022 (USD 278; JPY 1,850) per square meter.

Despite the international tension, the Dubai market keeps showing consistency, while obvious signs of decline are observed at an international level (in the USA, the United Kingdom, and other European countries).

Sales volumes

The Dubai market has been recovering and expanding for 18 months since it hit rock bottom in November 2020. However, analysts believe that the market has much to accomplish yet, although it will soon reach the peak performance level of the previous market cycle.

6,963 transactions were made in April 2022. This is 17.1% less than in March but 42.7% more than in April 2021. April thus became the second most successful month on record. It is second only to April 2009 by the number of transactions.

April 2009 and April 2022 differ by the types of recorded sales:

• Transactions with off-plan real estate accounted for 76% in 2009 compared to 46.5% in 2022.
• Since the beginning of 2022, the total sales volume reached 27,483, which is 65.1% greater than in early 2021 and only 6.1% below the 2009 record. At the current growth rate, the number of transactions will approach 99,000 by the end of 2022, which will set an unprecedented record.

In May, the total number of transactions was 6,606, which is 5.3% lower than in April. This is a small reduction compared to the generally positive market growth trends. The number of transactions increased by 48.6% compared to May 2021, marking the second most successful May performance on record (after May 2009).

Purchased properties

In May 2022, the key categories of property accounted for the following percentages of sales:

• 87.9% – residential real estate and apartments in Dubai;
• 5.4% – hotel apartments
• 3.5% – land plots
• 2.4% – office premises
• 0.8% – other.

Statistics on mortgage loans

Mortgage market analysis shows that 36.8% of loans in May were issued for purchasing a residential property. The average loan amount was AED 1.94 million (USD 528,167, or JPY 3,512,314) with a loan-to-value (LTV) ratio of 75.4%.

Rental yield

In May, the average rental yield continued fluctuating in the Emirates. At the moment, the average rental yield is 6.02%, which is similar to this February’s performance. However, certain property types generated slightly less income:

• Villas – a 0.10% reduction, down to 4.86% per annum;
• Apartments – a 0.03% reduction, down to 6.76%;
• Townhouses – a 0.03% reduction, down to 5.40%.

These fluctuations were far from unexpected and will probably continue, depending on the rent growth rates.

Forecasts

As previously mentioned, the Dubai economy demonstrates a strong consistency in the international context. The local housing market could become the safest place for investment compared to all other existing markets of real estate. The current moderate growth is expected to continue, which confirms this forecast.

As the US Federal Reserve System intends to increase interest rates aggressively in an attempt to curb rampant inflation, potential barriers to the UAE real estate market development are still directly dependent on the dirham rate being pegged to the dollar. Analysts believe that by the beginning of next year, the rate of the US federal funds will reach 3%. In this case, interest rates on the UAE fixed-rate mortgage products will exceed 6%, which could become an even greater burden for the mortgage market.

Additionally, the US Dollar is growing stronger compared to other major currencies, while Federal Funds Rates (FFRs) are rising. This makes the dirham stronger and increases potential export expenses (specifically, the cost of entering the market for foreigners investing in real estate). These two factors are likely to cool the market of both completed and off-plan projects by the end of the current year.

The diversity of buyers and investors in the UAE real estate market will mitigate the impact of the abovementioned risks to some extent, so the market, in general, will keep growing, although at a moderate rate.

Why invest in the UAE now

Over the past two years, the UAE Government took a series of comprehensive measures aimed at supporting the national economy, specifically by attracting investment from abroad. The latest novelty was the new entry and residence procedures for foreign nationals. The updated rules came into effect in April 2022.

What has changed?

New preferences for foreigners

Gold Visas are now granted to investors with the following terms:

• The minimum value of an investment in real estate has been reduced from AED 10 million (USD 2,722,544, or JPY 18,458,849) to AED 2 million (USD 544,508, or JPY 3,691,769).
• Mortgage is acceptable.
• The investor can buy an apartment in Dubai in a completed or off-plan property.

Green Visas for foreigners

Besides updating the previously existing visa programs, the UAE Government has also introduced new Green Visas which are valid for 5 years. Entrepreneurs, skilled employees, scientists, and talented people from various areas, as well as their relatives, are eligible for this visa if they meet certain requirements.

Visiting the country and opening a business

Foreigners no longer need a host or an Arabian sponsor to apply for a visa or visit the Emirates for work or leisure.

Conclusion

Despite the global tensions, the UAE, and particularly Dubai, remain an attractive place for living and conducting business, both for regular citizens and prosperous entrepreneurs. The latter will find this country a particularly fertile ground for preserving and growing their capital due to the government’s efforts to remove barriers and inconveniences for foreign investors and businesspeople.