By Mark Castley, CEO, LuxuryProperty.com
In the nearly two decades that I have been in real estate, I haven’t witnessed a market with the level of activity that Dubai has shown in these past two years. Over the course of 2022, the market hit a value of AED 240 billion (GBP 53.07 billion), recorded across more than 88,000 transactions. In terms of volume, this is 38 percent above the market peak reached in 2013.
Interest-rate spikes led to a slight decrease in activity from financed buyers, but a steady influx of cash buyers was ready to fill that gap. On the whole, there is a relatively even split between cash and mortgage transactions, which demonstrates a very healthy market. It’s fair to say at this point that this isn’t just a post-pandemic boom—the market has found its momentum because of several other factors.
Off-plan makes a comeback
Off-plan sales (buying a property before construction) accounted for roughly 44 percent of total transactions, demonstrating how strongly that market segment has bounced back since 2020 and early 2021, when secondary sales dominated. Dubai has always been a city that looks to the future, and its robust off-plan activity highlights not only its vision for growth but also increased investor confidence in what the city has in store for the years ahead.
Brands stand tall
Several high-profile off-plan projects were launched in 2022. These included Six Senses Residences, Orla and Ava by the Dorchester Collection, Palm Flower and the Ritz-Carlton Residences Creekside. It’s worth noting that nearly all of them are branded residences—something about which investors are very keen. There is no denying the power of a known brand, and any residential project with a brand association immediately attracts a high level of interest.
Coastal living at its finest
Another notable feature shared by the projects listed above is that they are all waterfront projects. Since the early 2000s, there has been an explosion in beachfront communities, starting with Jumeirah Beach Residence, part of the hugely popular Dubai Marina district and the template for beachfront living in Dubai. Since then, we have seen the rise of Palm Jumeirah, Pearl Jumeirah, Jumeirah Bay Island, Bluewaters Island and Emaar Beachfront, with several new communities still to come.
Throughout 2022, beachfront communities led the charge when it came to demand and transactional activity. Palm Jumeirah remains the top choice for luxury buyers, despite being more than 20 years old. There is an undeniable prestige to living in the Palm that even newer communities can’t compete with just yet. The most expensive sales transaction in Dubai history was recorded in Palm Jumeirah last year: a custom-built mansion that sold for more than AED 600 million (GBP 132 million). As a company, we were very proud to complete the most expensive rental transaction in Dubai, which was also a custom home in Palm Jumeirah that was rented for a staggering AED 4 million (GBP 880,000) on a six-month contract, equating to AED 8 million (GBP 1.77 million) annually.
These figures would have seemed wildly unrealistic for property owners only a few years ago but are now becoming commonplace.
Demand is outstripping supply
One of the main reasons for such sharp rises in property prices is the lack of supply, especially in the prime and super-prime segments. By June 2022, nearly 68,000 high-net-worth individuals (HNWIs) (with assets worth $1 million or more) had been recorded in Dubai, and that number continued to grow over the remainder of the year. As a result, demand for high-end homes in luxury communities such as Palm Jumeirah, Emirates Hills and Dubai Hills Estate has also been rising, with very few homes on the market to fulfill that demand.
A key factor in the supply shortage is the growth in end users following the pandemic. Increasingly, we are seeing buyers enter the market intending to make Dubai their primary residence, and they are here for the long term. Some property owners are hesitant to sell at this time, waiting for the perfect opportunity in a buoyant market.
When properties do become available, it doesn’t take long for them to sell, especially if the homes have been upgraded.
Upgraded homes, upgraded lifestyles
New homes coming to market are selling out in record time, as are older homes that have been extensively upgraded or remodeled. And in the rental space, upgraded homes are proving to be extremely attractive.
Two of our most notable rentals—the one in Palm Jumeirah mentioned previously and another in the Jumeirah Islands (the highest rental ever recorded in that community)—were homes that the property owners had carefully designed for maximum appeal. The former was a fully bespoke home sitting on an extended plot, while the latter had been heavily upgraded from its original specs.
The bottom line is that anyone who owns a property that is a few years old needs to invest in high-quality upgrades in order to have an edge in the market.
Holiday homes and football fever
On the rental side, we have also seen a supply shortage, which has led to steep rental increases—in mid-2022, it was not uncommon to find annual rents upward of $1 million in areas such as Palm Jumeirah.
As with the sales sector, the rental supply is partly limited due to tenants staying for longer periods and renewing their leases. Another factor affecting supply is a booming short-term rental market.
While Dubai has become more attractive as a place to call home for buyers, it remains a top destination for holidaymakers. The short-term and holiday-home sectors have grown considerably in the post-COVID landscape, with Dubai’s well-managed approach to controlling the pandemic helping it to position itself as the city in which to be for a safe and secure getaway.
Property owners discovered they could earn up to 50 times as much in rental income from a short-term rental as they would during the same time span from a long-term lease. For many landlords, it just made sense to go the holiday-home route rather than being committed to an annual contract that wouldn’t be as lucrative.
As the frenzy started building for the FIFA World Cup Qatar, the short-term rental market reached a fever pitch in terms of demand. Dubai is just a one-hour flight from Doha, making it ideal for football fans who wanted to drop in for only a few matches. By October 2022, if you were looking for a short-term lease in one of Dubai’s prime waterfront areas, such as Palm Jumeirah, Dubai Marina or Bluewaters Island, you would have been out of luck.
There has been speculation that the market would deflate in 2023 following the World Cup in December, just as there was conjecture that the market would crash in 2022 following the World Expo. The latter didn’t come to pass—if anything, the market scaled even greater heights. Could that success be repeated in 2023? It’s still too early to tell, but if the current activity level is any indication, I think we may be looking at another stellar year in Dubai real estate.