Dubai's Real Estate Market Estimated at Fair Value

In contrast to other major global cities, where high home prices show signs of a bubble, a new analysis claims that Dubai's real estate market is adequately priced and poses no danger of a drop.

UBS Global Wealth Management's Chief Investment Office released its annual UBS Global Real Estate Bubble Index 2022, which found that the property markets in both Toronto and Frankfurt were significantly out of whack, with prices failing to keep pace with inflation. Cities like Zurich, Hong Kong, Amsterdam, Vancouver, Munich, Tokyo, and Tel Aviv all have increased dangers.

New York, San Francisco, and Boston are the most undervalued major American cities, followed by Los Angeles and Miami. Despite recent decreasing trends, the housing markets in Stockholm, Paris, and Sydney remain expensive.

Geneva, London, Madrid, and Singapore are just some of the other home markets showing indications of overvaluation. Sao Paulo is equally valuable as Milan and Warsaw. The research also found that, despite a prosperous year, Dubai's real estate market was estimated at fair value.

According to the survey, rising oil costs and a significant increase in immigration levels in 2017 both contributed to the strong demand in the Dubai property market.

Where in Dubai did prices rise the most recently?

With a 3% increase from January to February, The Green Community (DIP) led the apartment market, trailed by Jebel Ali (2.8%), Jumeirah (2.7%), Dubai Festival City (2.7%), and Meydan City (2.7%).

The costliest properties in Dubai per square foot, those in Palm Jumeirah, increased by 2.9% in February, while those in Jumeirah Village Circle increased by 3%.

According to CBRE's Residential Market Snapshot for March 2022, prices per square foot in Downtown Dubai are the highest. Between the middle of 2021 and the middle of 2022, home prices increased by 10%. In fact, over the last four quarters, rent increases have exceeded gains in property values. As a result, the researchers concluded that current market prices were appropriate.

Extremely high prices

From mid-2021 to mid-2022, the nominal home price rise in the 25 cities studied surged to about 10% on average, the most significant annual growth rate since 2007. Housing prices increased everywhere except in Paris, Stockholm, and Hong Kong. For the second year running, debt levels expanded much quicker than the long-term average, and a rise in existing loans was seen in practically all cities, as reported in the research.

Increases in prices aggravate the current disparity.

Over the last decade, property prices have steadily gotten farther away from wages and rentals due to historically low loan rates. Inflation-adjusted prices in cities with high bubble risk have risen by an average of 60% over the last decade. Still, real wages and rents have climbed by around 12%, according to a recent analysis.

Since their lowest point in mid-2021, mortgage rates have increased by about twice on average across all locations studied. A third less highly trained service worker housing is available today than before the outbreak because of rising real estate costs.

Claudio Saputelli, Head of Real Estate at UBS Global Wealth Management's Chief Investment Officer, explains inflation and asset losses due to the current uncertainty in the financial markets. These limit consumers' purchasing power, reducing demand for extra living space. Thus, the investment appeal of housing is diminishing as borrowing rates in many cities rise beyond the returns of buy-to-let assets.

So, what's causing this price increase?

Residency licenses for seniors and remote employees, an expanded 10-year golden visa system, and the economic benefit from Expo 2020 Dubai have contributed to the UAE housing market's recent revival.

The broad coronavirus immunization coverage in the country has helped keep instances low compared to the rest of the globe, which has been good for business.

Real estate investment has increased over the previous year due to rising demand for living space and the addition of conveniences due to the rising number of people conducting at least part of their professional lives from home. So, Dubai's real estate market is estimated at fair value by Researchers.

Mortgage rates after promotions have increased in 2022, and payment terms have become more stringent. While this is the case, Dubai's head of research for Mena at CBRE, Taimur Khan, reports that residential transaction activity in Dubai is at an all-time high.

Dubai's non-oil private industry economy saw a significant uptick in business conditions in February this year, with the annualized IHS Markit Purchasing Managers' Index for the emirate rising to 54.1 from 52.6.

Economic growth occurs when the indicator exceeds the 50-threshold count, whereas a result below 50 implies economic recession.

A recent expansion in Dubai's business sector is a promising indicator that the Omicron [Covid-19] strain has had less of an effect on the economy than prior waves of the pandemic, according to David Owen, an analyst at IHS Markit.

Do we lose?

The analysis finds that in most areas, the strong labor market is now the only factor keeping the investor in Dubai's Real Estate Market alive. That, too, is in danger if the economy continues to the worsen.