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HOMEAPP & DAVIMA RESEARCH HOUSE
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DUBAI REAL ESTATE PRICES WILL LIKELY CONTINUE GROWTH BUT NOT UNIFORMELY
According to research of some agencies (Property Finder and Night Frank), in addition to the general recovery in demand for real estate stocked by economic growth, the rise in prices during the last three years has also been fuelled by limited property supply. The latter was affected by restrictions imposed during COVID, when construction was suspended. At the same time, despite the rising supply of new housing and the high pace of construction, prices continue to rise.
In our opinion, the rate of real estate price growth will moderate due to an increase in supply in the housing market and the achievement of a balance of supply and demand. However, positive economic trends, population increase, monetary pressures, looser monetary policy, will support dynamics of house price indices well above inflation.
As discussed in our other analytical research, the prospects of UAE economy are good and non-oil sectors continue to grow which will increase demand for population growth. Among this trend the demand for skilled higher paid workers increases fast due to the growth of economic efficiency and automation, as well as the development of sectors with greater value added (e.g. finance, consulting, manufacturing, education). This, in turn, should support the demand for housing.
The liberalization of visa restrictions and shift of living conditions in the country towards multicultural environment (e.g., introduction of golden visas, building of churches, liberalisation of some social restriction) have also significantly contributed and will continue to support the influx of population and demand for real estate.
Possible further liberalization of visa restrictions will help to maintain demand for housing due to the attractiveness of the living environment, especially given that the cost of housing in Dubai is still lower than the cost of housing in some countries with similar or lower public wealth – please see a separate research on homeapp.ae. Factors such as high-quality infrastructure, safety, still relatively less expensive and high-quality education, good medicine, low taxes will support migration.
Global monetary pressures spur investments. The growth of the global monetary base has been exceeding the growth of the world’s nominal GDP and will continue to do. The monetary base is absorbed by investments whose options will become more limited due to reduction of interest rates and as a result returns.
The start of looser the cycle of monetary policy leading to lower rates increase in the availability of mortgages and lower yields on alternative investment options.
In the past, the housing market has shown significant volatility. For example, from 2008 to 2010, prices in Dubai decreased by more than half and prices have not yet recovered for some properties, despite the rapid growth of recent years. However, in recent years, thanks to a number of initiatives to diversify the economy and increase its resilience to shocks, and a number of institutional and legal reforms that have contributed to the attraction of labour and an increase in the share of more stable population (the introduction of the "golden visa", the liberalization for quality of life, the increase in high value-added jobs), we do not expect such volatility in the future. Corrections are possible, but they will not be comparable to those in the past.
Exhibit: Real estate prices demonstrated volatility but will likely be lower going forward
Source: IMF
Despite overall growth we believe that it will become increasingly shaped by individual properties and their locations. As already indicated by the chart below, some areas experience less robust or even decline in prices. That is why the choice of individual property is growing in importance.
Exhibit: Growth is not uniform per area and property
Note: the change is valuated based of an average price for square foot change in the area. There is a tendency to build cheaper housing given the higher prices which distorts statistics for an area. Old properties has shown lower dynamics. For example, in Marina Downtown, Palm Jumeirah prices of many premisses increased significantly but overall dynamics is negative.
Source: (https://dxbinteract.com)
We believe that the segment of the relatively new middle level and exclusive housing will continue to show decent growth rates and greater stability in the current economic realities reflecting influx of wealthy population. Cheap and lower quality properties (low-prestige areas, remote areas with weak infrastructure, low quality of construction, old and/or small apartments) may still grow fuelled by migration of population from more expensive areas due to rising rent prices. However, in our view this growth is less sustainable and is a subject to higher volatility. This category of buyers with lower solvency is more vulnerable to economic cycles thus is more prone to migration after loss of income. They have also less favourable visa conditions.
