Can Dubai’s real estate market withstand a global downturn?

by Editor

In 2022, the real estate market in Dubai experienced another another banner year, shattering transaction records and raising luxury real estate prices to all-time highs.

However, while brokers have been having a good time this December at events all across Dubai, the situation is drastically different in most of the rest of the world.

This week, Reuters reported that property prices in the US are predicted to decline by 12% in 2023, while Bloomberg projected that prices in the UK may decline by as much as 30% by 2024.

These news stand in stark contrast to those from the UAE regarding the flourishing home market.

But for how much longer can Dubai real estate defy the trend as the world’s economies weaken and into a recession?

Compared to the crisis in the real estate market in 2009, Dubai is a totally different prospect.

And by comprehending what is driving our market and the downturn elsewhere, we may start to anticipate that this time, the story for Dubai will be written differently.

The value we all placed on homes as places where we not only lived, but also worked, exercised, and received education, surged throughout the Covid period, which was good for the world’s real estate markets.

Populations moved from cities to larger, rural properties as a result of flexible working.

But in 2022, those prosperous days came to an end as inflation and increased interest rates for the first time in a generation became a reality.

Interest rates increased from almost zero in January to over 4% by year’s end, which had an impact on buyers’ affordability.

The real estate sector has never benefited from higher interest rates, and the downturn in the US and Europe’s housing market is primarily due to these rate hikes.

Due to the high percentage of cash purchasers and the fact that Dubai benefits from increasing oil prices, which are currently one of the main factors driving global inflation, Dubai’s real estate markets are significantly less vulnerable to interest rate increases than those in the West.

According to the National Association of Realtors, cash purchasers in the US make up roughly 22% of all transactions. Cash is used to purchase property in the UK in 31% of cases.

According to research from Better Homes, cash buyers account for an average of more than 70% of transactions in the UAE, partly because the market is global.

Therefore, despite the fact that rising interest rates have a cooling effect on price increases, the local market has so far managed to absorb these increases without having an impact on transaction volumes.

There is reason to anticipate the rate of rate hikes would slow down by 2023. Some of the rises might be reversed by the end of the year if the US enters a recession the following year.

The UAE has done a tremendous job positioning itself as a safe haven for people and capital since the beginning of the pandemic, and we are currently going through a fresh wave of immigration to Dubai, which is likely to propel the real estate market until 2023 and beyond.

Many international citizens are seeking a secure environment for their families and their businesses as a result of global “push” factors like lockdowns, rising taxes, cost-of-living crises, natural disasters, and the ongoing conflict in Ukraine. The UAE has made a concerted effort to entice these people with visa and business reforms.

According to a worldwide citizenship company, Dubai is predicted to surpass the US as the top destination for ultra-high net worth immigration in 2022.

We can anticipate an increase in tourists and inhabitants in 2023 due to China’s opening up.

As a result, Dubai’s population reached 3.5 million this year and is expected to increase by 110,000 people per year to 5.9 million by 2040.

Last but not least, Dubai is a significantly different investment than it was at prior market peaks. Today’s market is more diverse, regulated, and displaying indications of maturation.

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