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Real estate experts say that rising global inflation will slow down the development of the Dubai real estate market, but not too much.
The end of 2022 was a milestone for the Dubai real estate market, breaking several records. Meanwhile, the situation in the housing stock may change in 2023, due to the increase in interest rates and this affecting the ability of consumers to pay.
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Interest rate rising in Dubai
As interest rates rise, real estate growth in Dubai may moderately slow down. However, the increase in rates will have little effect on the residential property market.
From February 2nd, 2023, the Central Bank of the UAE has increased the base rate of the Overnight Deposit Facility (ODF) from 4.4% to 4.65%. The decision came after the US Federal Reserve raised interest rates for the eighth time in an effort to bring inflation down to a target range of 2%. An increase in the ODF base rate could reduce the demand for housing, which in turn will affect the value of real estate and the purchasing power of consumers in Dubai.
According to real estate experts, about 70% of the real estate transactions in the UAE are performed predominantly for cash, so the impact of an increase in interest rates will be negligible.
Increased real estate value
In 2022, the value of real estate decreased from 16% to 11%, and this happened mainly due to the development of the Covid-19 pandemic.
Due to strong market demand, real estate prices are expected to rise by 5% this year, according to experts, as wealthy citizens and foreign investors continue to come and invest in this sector.
The interest rate could reach 4.90% by the end of 2023. However, the advantages of Dubai, which are highly appreciated by businesspersons, investors, and property owners, continue to be of great interest for potential buyers, thereby activating the market growth.
Rent increase
In addition to rising property prices due to inflation, rental prices will also increase in 2023. Due to the intensive growth in housing prices, as well as higher interest rates on mortgages, potential buyers decided to postpone the real estate purchasing or search for rental housing. As the market demand for apartments for rent increased, apartment owners were able to raise their rent. It is more profitable for tenants to agree to higher tariffs than to buy real estate with a mortgage.
Also, rising inflation rates adversely affected vacation rentals. Rising inflation is scaring away tourists who prefer short-term property rental options.
Office cent rents are back to pre-pandemic levels, up 12% year-over-year at the end of 2022.
Average warehouse space rents rise as logistics demand continues to be strong, with cargo flows at Dubai International Airport (DXB) and Dubai World Center (DWC) up 3% and 5% respectively year-over-year.
