Seven reasons why investors can’t resist Dubai’s real estate sector

01 Demand for homes will remain high as more resident visas are granted

The demand for homes will continue to challenge supply in 2024. Dubai’s population has risen by 13 per cent in the last five years, reportedly growing by over 422,000 and the upward trajectory shows no sign of slowing.

In my view, the emergence of a soft landing for the global economy as we transition out of this inflationary cycle will allow Dubai’s economy to continue to flourish which will fuel its population growth. So, if the rate of growth we have seen since 2019 continues over the next five years, there will be almost half a million additional people looking for somewhere to live.

02 Dubai will remain resilient, and investment will continue flowing in

Dubai’s global economic resilience will keep the city in the international spotlight in 2024. The increased levels of direct foreign investments will also continue, buoying the market for ongoing business growth. This will send a positive ripple effect across the UAE’s job market, in turn contributing to further population growth. Combined, this environment will only further affirm Dubai as a viable and vibrant place for investment and business.

03 Central communities could appreciate further

Historically more affordable communities such as Mira and Mudon have seen transaction volume increasing year-on-year. These locations, which were once considered further, away are now expected to see a rise in property valuations as an impact of the transaction uptick. I expect to see this shift narrow the gap between the most sought-after locations and those a little further from the city, which will in turn initiate a fresh wave of price appreciation in Dubai’s well-established communities.

04 Ultra-luxury real estate sales in Dubai will continue to boom

Dubai’s ultra-luxury home sales experienced the largest increase in year-on-year transaction activity in the second half of 2023 when compared to lower price brackets. And there is every reason for demand to persist.

Since the pandemic, the city has increased its appeal to ultra-high-net-worth-individuals (UHNWIs) across the globe, due to improvements in Dubai’s overall lifestyle offering including some of the lowest crime rates anywhere in the world, advanced infrastructure, excellent healthcare, zero percent income tax rates, a business-friendly economy, and that’s not to mention the sun, sea, and sand.

05 Interest and mortgage rates are likely to fall – but we may be waiting until H2

Disinflation will eventually lead to an adjustment in the interest rates in the US, and therefore in the UAE. While there is much anticipation for this news, certainly amongst real estate buyers, expectations that interest rates will fall during H1 might be overstated. Now, there appears to be an increased probability that any reduction might not be seen until the summer at the earliest.

When it comes to mortgages, in the first week of January, we saw several banks offering reduced rates.

During Q4 2023, the lowest three-year fixed rate mortgage product on the market was 4.24 per cent which has now been surpassed by a bank offering a lower rate of 3.99 per cent.

06 More tenants will consider home owning as rents remain high

In 2024, it is likely that rental rates will remain elevated, serving as a significant motivator for people to opt for homeownership versus renting. There are many people who have been in the city for 10 years or more now and consider UAE a long-term base.

Coupled with the fact that monthly mortgages are increasingly lower than rents, often for bigger properties, we expect the trend of tenants converting to buyers to continue.

I believe end-user demand will remain robust into 2024 and a long-term buyer mindset will continue to drive real estate market activity for many years to come.

07 Rent versus buy case study

One of our tenants recently came to us as they were ready to look into buying a house. They are a young family who have lived in Dubai for ten years and were living in a two-bedroom apartment in Dubai Marina, paying Dhs155,000 in rent, which is significantly higher than the rent they were paying a few years ago. With the savings they’ve accrued over many years, they were able to afford the Dhs550,000 deposit and fees they needed to buy their dream home, a Dhs2.4m townhouse in Villanova. This is a smart move for two main reasons:
A) The family’s monthly mortgage payments are cheaper than what they were paying in rent. Dhs130,000 (capital and interest) versus Dhs155,000 rental cost.
B) They were able to upsize to a three-bedroom villa with maid’s room and enjoy the benefits of having more space, a garden, a nice community with pool and much more.

The writer is the managing director at Espace Real Estate.