Real estate’s overall recovery is still a long way off, according to S&P Global Ratings.
Real estate prices in Dubai have rebounded strongly from record low levels at the end of 2020, though demand is still uneven. And due to oversupply of residential properties prices will be under pressure in the long run, which makes the recovery of the sector fragile, S&P Global Ratings said.
In the 12 months to August, average residential property prices in Dubai rose by 4.4 percent, the highest annual growth since February 2015. However, an ongoing fall in apartment rents indicates continued weakness in the emirate's property sector.
'The rebound in demand for residential real estate has largely benefited premium developers with a surge in pre-sales and price improvements,' S&P said.
According to market data, prices for apartments, which make up 85-90 percent of properties, increased by about 6 percent in the second quarter. The rates for villas have also accelerated while rents for apartments are still lagging.
Reuters reported in March that the luxury segment of Dubai’s property market was witnessing a boost after last year’s sharp downturn but real estate’s overall recovery was still a long way off.
Economic crisis in the United Arab Emirates had started even before the coronavirus pandemic, namely after the 2014-15 oil price crash. Moreover, supply in the real estate market has outpaced demand for new houses and apartments for years with most of the population being foreigners, many of whom left when the pandemic broke out.
Real estate prices are at a low point in the cycle, S&P said. A rebound in prices is expected in 2021-2022 supported by demand driven by improved consumer sentiment, increased oil and gas prices, high vaccination rates in Dubai and the Expo 2020 event delayed by a year due to the pandemic and currently taking place in the city.
S&P believes that in the longer run, the demand for residential properties will depend on the success of the recent government initiatives targeting population increase, such as new visas and more liberal social laws.