Dubai’s luxury real estate market is booming. Here’s why

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The terms ‘Dubai real estate’ and ‘luxury’ have become somewhat interchangeable this year – rarely do you hear this market mentioned without the context of ‘luxury’, and yet most market participants are left wondering whether this segment is threatened by – or immune to – global headwinds.

We have examined the fundamentals leading to this rapid ascent into luxury, the factors driving it, and the response on the ground from developers and decision-makers.

Demand drivers since the onset of Covid-19

Pandemic tourism: Dubai beat everyone to the punch as it opened its borders to tourists from around the globe while the rest of the world shut down and closed its borders. Many wealthy individuals discovered Dubai for the very first time, and in doing so, made it home for their families.

Inflation: The US Fed slashed interest rates in order to spur consumer demand and spending, leading to asset price inflation across nearly all asset classes globally, with luxury property claiming the top share.

Higher oil prices: Steady increases in oil prices helped companies around the UAE thrive, spurring trickle-down effects into the broader UAE economy.

Regulatory and systemic reforms: These reforms helped ultra-high net-worth individuals migrate from Europe, the UK, and other countries to Dubai seeking to take advantage of the Emirates’ superior tax regime.

Russia/Ukraine crisis: Wealthy Russians migrating to Dubai sought new homes as insurance against possible deterioration in both the Russian rouble and the broader Russia narrative.

Globally, rising interest rates at a record pace are cause for concern at all levels. However, the Fed has signalled it will potentially end hikes at least through the remainder of the year.

In addition, worries about runs at regional banks in the US, and the recent turmoil surrounding Credit Suisse and other European banks appear to have subsided as governments enact measures to restore confidence in investors.

Among the top global cities

This provides a sigh of relief to the Dubai market as it claimed the top spot among global cities in the performance of its luxury space, rising a staggering 44 per cent year-on-year. This occurred while luxury home prices around the world (looking at 46 major cities globally) declined in Q1 2023 for the first time since 2009.

The Dubai market continues to be a melting pot for the global wealthy, with the property market primed to be a key recipient as more luxury projects are brought to life in the coming months and years.

Further, if global interest rate increases come to an end and geopolitical tensions continue, there is little doubt that Dubai has tremendous upside to offer global investors over the next 6 to 12 months.

No one is more excited and prepared for this continued ascent than developers. Earlier this year, real estate tycoon Nick Candy announced a partnership with Dubai World Trade Centre to develop a super prime development by the Museum of the Future, and plans to set new price records in the city as his firm, Candy Capital, marks its debut into the market. Other notable developers see the opportunity as well.

For example, Lamar Development is planning to launch its iconic Park Lamar development near Safa Park, catering exclusively to the ultra-luxury space. Finally, luxury private developers such as Brookfield Properties and H&H are also planning masterpieces around the city, with all these developments launching in the second half of the year.

Monitoring liquidity

As existing demand drivers continue and new benchmarks surface, the fact remains the ‘tried and true’ test will be if interest rate hikes pause, it is likely that the bull run in prices for the luxury market shall extend throughout the year if further increases slow down or cease.

Another facet to monitor is liquidity – it has shown no signs of dissipating and new capital flows coming from new destinations, these factors will further fuel the growth in this segment and improve its defensibility as an asset class.

Dubai is great at breaking records, and 2023 is already full of shattered records, both in terms of volumes and values in this segment.

In the first quarter of 2023 alone, 88 homes were sold at or above $10m, with 64 per cent of these sales happening in three locations: Jumeirah Bay Island, Emirates Hills, and Palm Jumeirah. So what four words best describe the remainder of 2023? Records set, records broken.

Abdullah Alajaji is the CEO and founder of Driven Properties