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Despite the decline in real estate transactions in April and May of this year, the Dubai’s sector earned $16,800,000,000 from January to May. During the year, it is forecast that GDP growth will reach 6% in the market, as well as in Abu Dhabi, the capital of the United Arab Emirates.
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Reasons for the increase
In a context of rising inflation, there are two basic reasons of the high rates: constant rush and government policy.
The first reason refers to investors who invest now, while this option is still profitable. Property tends to grow in capital value with inflation. So, real estate investments have a very logical justification.
The second reason is connected to market confidence. The UAE government supports a diversified import strategy, which allows access to different goods necessary for the economy and allows consumers to choose the cheapest options under global price increases. With price freezes on thousands of consumer products and support programmes to key economic sectors, including the construction sector and the real estate market, there is sufficient evidence for buyers and investors to continue investing their money in the country and its emirates.
Business confidence
Relatively positive moods and trends in the country's economy are reflected in the indexes of business activity and business confidence in the future of the UAE. The rates show a stable level of business confidence for 12 months starting from April 2022.
However, in spite of the increase in business activity, the recruitment rate declined slightly. Although hiring new employees is less active, this nonetheless shows that the business is "nervous" about developing local and global issues.
Companies are most concerned about growing inflation, but so far they have been able to maintain their financial health by passing along increased expenses to customers in the form of higher final prices.
Against economic problems
Indeed, the thing that makes the housing market different from other sectors is the fact that when the situation takes a turn for the worse in other markets, a huge number of people turn to real estate investment as the best way to save money. Especially with inflation, to which real estate is well adapted because of the rise in capital value that occurs naturally.
A good example is increasing interest rates on loans. In the UAE, the key interest rate is connected to the movement of an indicator, which is managed by the country's Federal Reserve of the United States. Since the beginning of the year, there have been multiple instances of rising loan interest. In June, it increased by 75 basis points.
Today, interest on loans has already exceeded 2%, but the housing sector continues to grow, as shown by the figures for the first five months of the year.
In Dubai, up to 18% of buyers of villas and apartments are mortgage borrowers. By comparison, during the global real estate bubble in 2007, up to 40% of buyers used loans for their purchases. More than 50% of all property transactions took place with the use of borrowed funds. Thus, the growth in interest rates does not affect the local market as much as it could have 15 years ago.
Of course, increasing rates will discourage potential buyers from entering the market. But still, the current demand is quite independent of changes in this indicator.
And yet, at the end of May, $10,300,000,000 was financed by banks in the housing market.
Great cover against inflation
Regarding rising capital values and real estate prices in the context of inflation, it is worth mentioning that the high-end market segment rarely attracts credit money. Elite real estate is almost always bought with actual funds. This makes it resistant to the direct influence of rising interest rates on demand.
In general, in Dubai, the price growth in the main real estate segments is expected to be between 5-7%, and the increase for premium units will reach 12-15% by the end of the year. Thus, property investment will help to keep them at a time of of projected inflation.
General market rates
It may be helpful to indicate several indicators below to demonstrate the market’s growth in sales and prices in the first five months of the year.
- In May, the total number of residential real estate transactions rose by 33% in annual terms and amounted to 5,542 transactions.
- The number of off-plan real estate transactions (note: units under construction) increased by 55.4 in annual terms.
- The number of real estate transactions in the second-hand market grew by 18% in annual terms.
- From January to May, the total number of transactions reached 30,903 transactions.
- From January to May 2022, the average property price increased by 10.9%. Apartment prices rose by 9.6%, and villa prices grew by 19.8%.
Rental rates are growing at the highest pace since October 2014 in Dubai
In the emirate, the average rent has increased by 19.1% over the past 12 months (as of May 2022). Apartments grew by 18.3%, and villas — by 24.3%. In May, the average monthly apartment rent was about $23,000, and a villa was rented out for approximately $68,000.
A month earlier, in April, the rate hikes amounted to 16.2% in annual terms. Thus, we have the highest rate of rental price growth in the emirate since October 2014. The highest rental rates were recorded in the Palm Jumeirah and Al Barari areas.
