Dubai’s property market has been witnessing a boom over the past years, with 2023 to become the busiest year so far. That said, according to DLD data, in H1 2023, the value of properties sold amounted to AED 62.3B (USD 16.9B) more than the amount sold in H1 2022. The popularity of the emirate is driven by several factors, including fairly low prices in comparison to other worldwide metropolises, its growing economy, and the high quality of life. Thanks to the favourable investment climate, the risk of a real estate bubble occuring in Dubai is very low.

What is a Real Estate Bubble?

A real estate bubble is a situation when the existing state of affairs is significantly different from its objectively justified state. In terms of real estate, it can happen in the following cases, for instance:

<ul><li>Imbalance of supply and demand</li><li>Unjustifiably high prices</li><li>Over-indebted households</li><li>Bad mortgage interest rates</li><li>Overvalued properties</li></ul>

The UAE witnessed the burst of a bubble during the world crisis from 2007-2008. There was a sharp decline in sales and real estate prices, while the construction of many developments was frozen, and several property developers even went bankrupt. Since the real estate market is one of the main drivers of the economy, the bubble led to an increase in unemployment, a weakening of the household economy, and an aggravated situation in the country.

Factors Affecting Dubai's Real Estate Market

Driven by a rapid economic rebound post-COVID, Dubai has emerged as one of the leading destinations for living, playing, and investing. It is now chasing after new goals, as the 10-year economic plan, D33, aims to double the economy’s size and make the emirate one of the top 4 global financial centres within a decade. According to the Dubai Land Department, a total of 60,440 sales transactions were registered, with a total value of AED 177.3B (USD 48.3B) in H1 2023. Just to compare, H1 2022, recorded 43,200 deals valued at AED 115B (USD 31.3B). This illustrates the growth potential of the city’s property, amidst the stable geopolitical environment and lax residency rules. Judging by the estimated transaction activity, 2023 is set to become the busiest year so far for the local real estate market.

Low Property Prices

One of the key reasons for Dubai’s popularity among homebuyers is how it compares to other metropolitan cities in terms of property prices. For instance, in London, the approximate cost for a 2-bedroom apartment is AED 10M (USD 2.72M). Meanwhile, in Downtown DubLow Property Pricesai, which is one of the prime areas, a 2-bedroom unit can be bought for about AED 2.5M (USD 681K). The actual size is way more generous in Dubai as well, which, combined with affordability, makes local real estate even more appealing.

Demand for Off-Plan Properties

The undersupply of completed real estate resulted in a surge of demand for off-plan units. Among the most notable recent launches are Palm Jebel Ali, Dubai Expo City, and The Oasis. Developers now take advantage of the growth of off-plan projects and strive to offer units at competitive prices. Therefore, even with a new supply of real estate, the local market is highly unlikely to witness a crash.

Increasing Population

According to the Dubai Statistics Center, Dubai’s population was more than 3.5 million people in April 2023, fueled by a rise in migration. The emirate has been open for business and tourism, plus there has been consistent in-school education, which lured many foreigners to relocate here. Not forgetting the advantageous Golden visa and remote work visa programs that helped to attract even more expats. In the UAE, you and your family can obtain a 10-year Golden visa upon acquiring property worth at least AED 2M (USD 545K). The real estate market will be in need of a rather large expansion, as the government plans to encourage the growth of the population to an estimated 5.8 million people by the year 2040. As a result, the rising population will guarantee a stable demand for property both for sale and for rent.

Quality of Life

In the Expat City Ranking 2022 by InterNations, Dubai came in second for the best city for expats to live and work, with a high indicator in the ease of setting in. When relocating to a new country or city, people aren’t only interested in the price per sq. ft.; other aspects include safety, the government, tax benefits, and the overall lifestyle. The emirate is continuously striving to improve living standards for its residents. These encompass infrastructure, especially public transportation and airports, the economic environment for local and foreign businesses, and the creation of new recreational and economic facilities. NBD! By 2050, the emirate’s Dubai World Central, which is currently being expanded, is set to become the largest airport worldwide. Also, Dubai is currently undergoing a digital transformation to further boost the efficiency of government operations and the quality of life. That said, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai and Chairman of the Executive Council, launched Dubai Digital Cloud in July 2023, which will provide a unified data platform for all government entities in the emirate. This step will reduce waiting times and service operating costs for government procedures, including property transactions.

Is there a Bubble in Dubai’s Real Estate Market?

As we can see, Dubai is nowhere near a real estate bubble. Developers, brokers, and agencies are able to sell a real product in exchange for real money. There are not many mortgage borrowers among buyers, especially considering that the banks have tightened their credit policy and developers now offer quite advantageous payment plans. Also, there are just a few companies that operate solely at the expense of momentary excitement. Last but not least, there are no investors burdened with debts. According to the UBS Global Real Estate Bubble Index 2022, Dubai is fairly valued and its bubble risk is the second lowest worldwide after Warsaw. The emirate is attracting more skilled and wealthy individuals from other regions thanks to the more favourable investment climate. As the UAE is considered to have handled the pandemic much better than most other countries, mainly due to the relatively lax quarantine rules and quick reopening of the country, experts agree that a crash is highly unlikely to happen. To avoid any short-term losses on the market, it is recommended to adopt a long-term, off-plan real estate investment strategy.

Conclusion

Dubai is one of the most attractive destinations worldwide for real estate investment thanks to a surging population, high quality of life, and the demand for off-plan units. The risk of a real estate bubble occurring here remains rather low, as there are few mortgage buyers, a constant inflow of homebuyers, and fair-valued properties.