Shortages in high-end real estate loom for Dubai

Concerns surrounding oversupply are taking a backseat as growing buyer demand coupled with rising interest rates poses a new set of challenges for premium property in Dubai

• Dubai’s premium market could face a shortage in the longer run
• Factors including efficient handling of the pandemic, quality of life and ease of doing business have made Dubai an attractive destination
• Challenges including rising interest rates and supply chain disruptions are expected to affect arrival of new stock
• Dubai will be a net-winner in the short-term, as continued demand props up prices and boosts profits

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Dubai is facing the prospect of real estate shortages due to surging demand for high-end property, a leading real estate financier in Dubai has warned.

“The past year has seen record demand for luxurious and premium properties in the emirate,” says Cyril Lincoln, executive vice president, global head of real estate finance and advisory at Mashreq Bank. “But wider macroeconomic conditions could affect how well developers are able to meet this booming demand.”

Demand for property in Dubai is growing despite the rise in prices.

According to real estate consultancy Knight Frank, prices of luxury homes in Dubai grew by 44 per cent in 2021, driven by demand from wealthy international buyers from markets including Russia, India and Europe.

Analysis from market tracker service Property Monitor shows that January 2022 recorded the highest price appreciation since August 2021, in tandem with monthly transaction volumes growing by 2.1 per cent.

Balancing demand and supply

On one hand the premium property market is witnessing healthy demand. Challenges, however, persist on the supply end. Lincoln expects to see the prices of property plateau at some point.

But the way ahead will be influenced by several factors, including rising interest rates and inflationary risk, supply chain disruptions, shortage in materials and geopolitical uncertainty.

“The supply chain crisis in particular has affected shipping costs and pushed up the overall rates and time it takes to get things delivered,” says Lincoln.

“This will create an inflationary effect in terms of the cost of new construction and may act a natural barrier when it comes to future supply, and may make people more wary with the release of their next projects.”

Factor driving demand

Lincoln notes that Dubai’s handling of the pandemic has strengthened its position as a safe and responsible city to invest and live in.

“Despite the health crisis, people never got into a state of panic or feel like they did not have access to proper healthcare or vaccines,” he says. “In fact, for a while we even had vaccine tourism where people would fly into Dubai to avail vaccines that were so difficult to access even in some of the biggest cities in the world.”

He adds that people that moved here just before or during the pandemic on a short-term basis have now elected to stay back. He attributes this to the quality of life that the city offers.

Residential segments including villas and townhouses have seen a steady rise in demand since 2021, underpinned by trends such as remote working and community-living.

Insights from Knight Frank highlight that villas are projected to account for just 15 per cent of total new stock expected to come to the market 2022-2025, hinting strongly at the continued outperformance of villas, relative to apartments.

Another factor that has worked in Dubai’s favour is the successful hosting of Expo 2020 and the planned integration of the site into Dubai’s wider masterplan later this year.

Property consultant Core reports that 37,000 residential units, including 5,900 villas were delivered in Dubai in 2021. Estimates made in January 2022 by Core suggest that a similar volume of units was expected to come to the market, but revisions would be made based on shifting market conditions.

 

“In the short term, Dubai is a net beneficiary,” notes Lincoln. “The demand trend will continue, and property prices will help boost profits, especially with the geopolitical events that are directing people to Dubai’s shores. But in the longer run, it could give way to shortages in prime segments while keeping prices elevated.”

 

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This briefing is brought to you by the MEED-Mashreq Real Estate Partnership. For more insights, write to us on: MEEDMashreqPartnership@meed.com.