After a quick recovery from the pandemic and strong demand for sustainable residential units, most economists expect the Dubai real estate sector to rise in 2022 and the following years.
But there is a catch: the latest research from real estate consulting firm CBRE suggests that the market will experience some headwinds in 2022, at least when compared to 2021, mainly with payment plans, and mortgage rates likely to edge up.
For the past 18 months, the real estate sector in Dubai has been booming, as everyone expects rents to rise in the luxury segment, said ZAZEN ONE Co-founder and COO Madhav Dhar, in an interview with TRENDS.
Some areas in Dubai witnessed a 30-40 percent price increase in the two years. In addition, during the pandemic a lot of interest has been witnessed in townhouses and getaways that are far from the city’s madding crowd.
However, Dar expected a pricing correction in the future.
Manager Partner of BSA, Jimmy Haoula, explained that the United Arab Emirates had outshined many of its neighboring jurisdictions with a welcoming economy and a safe place to grow and live.
As a result, the main factor of rising prices in the real estate sector, mainly in Dubai, will be the demand.
Property headwinds
The CBRE expects transaction volumes to remain robust over the year despite 2021 headwinds. In addition, villa and apartment sales will remain strong in a post-pandemic world.
The market performed well in 2021, with average home prices and rents increasing by 9.3 percent and 8.3 percent, respectively. Last year’s price growth was also the highest since January 2015, while rents continued to be at historic highs, particularly for villas, thanks to solid demand from buyers and tenants.
Sector performance
According to a report by Asteco Property Management, 2021 witnessed the delivery of about 17,000 housing units, including 15,000 apartments and 2,000 villas, as communities such as Jumeirah Village Circle and Akoya Oxygen recorded the bulk of the completions. In addition, the commercial real estate segment also saw the handover of approximately 1.5 million square feet of new office space.
As expected, the launch of Expo 2020 contributed to an increase in demand for real estate and an increase in rental prices. Also, rental rates for apartments and villas increased by 3 percent and 4 percent quarterly and by 10 percent and 24 percent annually. In addition, office rental rates have also increased by 4 percent on average over the past three months, although actual net rents may be affected by additional incentives. However, annual changes contracted at 1 percent.
In the sales sector, sale prices for apartments, villas, and offices continued their upward trajectory, rising by 20 percent, 40 percent, and 12 percent, respectively through 2021. Increased levels of supply and affordability have opened the market to a broader group of investors and facilitated an increase in the number of end-users and buyers.
Moreover, the report indicated a noticeable rise in inquiries focusing on high-quality properties with competitive prices, especially in the villa sector.
Future forecasts for 2022 estimate that the new supply will amount to about 30,000 housing units and two million square feet of office space, but similar to previous years, some of these units are expected to be delayed and eventually extend their delivery dates to 2023.
With more units delivered in 2022, tenant retention will become more critical, and rental rates across all major asset classes are also expected to rise for high-quality properties, albeit at a lower rate. In addition, sales prices are likely to continue to grow but decline in 2022, parallel with the increase in supply and the launch of new projects.