Dubai’s real estate market: What should investors look at in 2022?

Historically, the Dubai real estate market has gone in cycles.

In 2005 we saw a major peak which resulted in a 2008 crash. It did not take long for the market to recover and in 2014, we were at an all-time high again, only for the market to crash in 2018. The year 2021 has seen property again at an all-time high which only leads to the speculation of when is it going to crash again.

I don’t believe it will – there may be a slight correction but I think the days of seeing major downward swings are gone. The market today is a more mature one. Today an investor can build up a portfolio and earn double digit growth on the investment even during a downturn.

These are the investors we see in Dubai’s real estate market now:

1. The old-fashioned flipper: These are the ones who made millions during the real estate boom in 2004 and 2005 by buying pre-launched real estate and flipping it for triple digit returns in a matter of days or weeks. By the time the property reached the end user, it had doubled or tripled in value – the main reason why the markets always corrected themselves. These investors will see lesser opportunities as developers are taking advantage of the first few flips themselves at present. This is resulting in better projects being built.

2. End user: They form the foundation for any real estate market in the world. With Dubai’s population continuing to grow, end users will always be a big part of the space and create the stability that is needed.

3. Investors looking for a yield: This has been the investor who lost out in Dubai over the past year. With laws supporting the tenant, it has also become very difficult – if not impossible – to evict a tenant who is paying a low rent, hence reducing the yield for the investor. For this investor, a 3-5 per cent return is just not attractive enough.

The vacation rental market has allowed multiple benefits to the Dubai real estate space and that is why I think the days of major crashes are long gone. I think you will see steady growth and slight corrections – if any – over the next few years.

As an investor looking to grow a portfolio and earn a fixed income on their investments, short-term lets offer between 8-15 per cent returns after all expenses. Another benefit is that the real estate is also well maintained and easy to sell unlike when it is given to a long-term tenant.

With these kind of returns, it is an attractive investment area for large funds and family offices.

Real estate in Dubai is also undervalued when compared to global cities. And because of this, investors can potentially double their money in a period of five years through short term rental income and property appreciation.

To compare, if you take a one-bedroom apartment on the Palm Jumeirah or JBR in a building that has access to a private beach, you are looking at an investment of approximately $650,000. The same quality apartment in LA, Miami, New York or Barcelona would cost between $1.5m- $2m.

The combination of supply finally increasing in Dubai and short term rentals will redirect the market from having a major crash towards a slowdown, only to rise again a few years later.

Dubai’s real estate market, over the next 10 years, still has a tremendous amount to grow as new projects still keep getting announced. But I am certain that in 10 years, taking inflation into consideration, you are not going to get the same one-bedroom at $680,000; we would have reached global levels by then, and that same unit will be worth over $2m.

Vinayak Mahtani is the CEO of bnbme holiday homes