Dubai’s growing population set to sustain property momentum, analysts say

Dubai: After five years of rapid expansion, analysts are forecasting a period of price moderation as new supply enters the market.

However, they are optimistic that even though prices may soften over the next 12 to 18 months, a steady increase in the emirate's population will be able to absorb the surplus relatively quickly.

Moody’s Ratings expects a modest decline in developer sales and mild price pressure in parts of the market, though fundamentals remain intact and systemic risks appear contained.

The shift follows a record 2025, when Dubai recorded more than 270,000 real estate transactions worth Dh917 billion. Off-plan activity dominated the market, accounting for roughly 72% of residential deals, while transaction volumes in the first half of 2025 rose 26% year-on-year, according to Dubai Land Department data.

Apartments most exposed, villas more resilient

Price movements are unlikely to be uniform across segments.

“In our view, the most likely outcome is a mild softening overall rather than a deep correction. Price developments will differ significantly across market segments. We expect small outright price declines in the apartment segment, particularly affordable studios and one-bedroom units and in more price-sensitive areas where supply is increasing most sharply,” said Lisa Jaeger, Vice-President Senior Analyst at Moody’s Ratings.

“By contrast, we continue to see price increases in the villa segment, although at a slower pace than in recent years, reflecting more resilient demand dynamics and tighter effective supply.”

The divergence reflects shifting buyer preferences toward larger homes and established communities, even as mid-market apartment clusters face heavier delivery schedules.

Supply surge to test momentum

Moody’s forecasts around 180,000 residential unit completions in Dubai between 2026 and 2028, equivalent to roughly 60,000 units annually. That compares with an annual average of 30,000 to 40,000 units over the past five years.

“Our base case is not a disorderly oversupply, but rather a sizeable supply wave that slows price growth and cools transaction momentum,” Jaeger said.

Population growth will determine how smoothly the market absorbs this pipeline.

“If Dubai’s population were to continue growing at around 6% per year, as it has over the past two years, this level of new supply could be absorbed relatively quickly. However, we expect population growth to moderate back toward more historical levels of around 3% per year. At that pace, Dubai would need closer to 40,000 new units annually to keep supply and demand broadly balanced and prices roughly stable over the longer term.”

That gap between completions and structural demand suggests pricing power may weaken in some areas, particularly high-density mid-market communities.

CBRE MENA’s Head of Research Matthew Green noted that transaction volumes remain robust, with 2025 figures showing nearly 20% annual growth. January 2026 data also reflected continued momentum, driven primarily by off-plan activity. However, he expects moderation through 2026, particularly in rental markets facing large delivery volumes.

Developers cushioned by strong backlogs

Despite expectations of slower new sales, rated developers appear shielded in the near term.

“The developers we rate generally have very strong revenue backlogs, typically equivalent to two to four times their most recent annual revenue,” Jaeger said. “As a result, even if new sales were to slow sharply, we would not expect a material negative impact on revenues or credit metrics for most rated developers over the next one to two years.”

Revenue backlog reflects units already sold but not yet recognised as revenue, providing visibility as projects progress.

Smaller and less experienced developers, however, face greater vulnerability. “It is also important to note that smaller, newer, and less experienced developers often do not benefit from the same level of backlog and would be more vulnerable to a slowdown in sales and prices,” she added.

Financing shift and leverage risks

Real estate financing has evolved significantly since 2022, when the Central Bank of the UAE capped banks’ exposure to real estate at 30% of credit risk-weighted assets.

“Since the Central Bank of the UAE capped banks’ real estate exposure at 30% of credit risk weighted assets in 2022, banks have pulled back from real estate lending,” said Francesca Paolino, Assistant Vice-President at Moody’s Ratings. Bank exposure has since declined to around 18.3% of credit risk-weighted assets by mid-2025, leaving capacity but limiting concentration risk.

Developers have increasingly turned to sukuk and bond markets, issuing nearly $12 billion since 2023. “The sukuk market remains very active for UAE real estate developers and has become an asset class that investors understand and are increasingly comfortable with,” Jaeger said.

Rising land prices present a separate challenge. “Yes, primarily through the cost of replenishing land banks,” Jaeger noted. Developers acquiring large volumes at elevated prices could increase their exposure to future declines, although land typically accounts for a smaller share of total project costs.

Banks are well-positioned for a slowdown

UAE banks appear structurally stronger than in previous cycles. “UAE banks’ exposure to the real estate sector is materially lower and better controlled than in previous cycles,” Paolino said. Construction and real estate now account for roughly 12% of corporate lending. Non-performing loans stand at around 2.9% with high provisioning coverage and strong capital buffers.

Lower interest rates may compress margins but are expected to support mortgage affordability. Mortgage volumes have already surged beyond pre-pandemic levels, even with elevated borrowing costs.

Analysts agree that supply alone is unlikely to trigger a sharp correction. Jaeger said a deeper downturn would require a broader confidence shock.

“A sharper correction would most likely be triggered by a loss of confidence, rather than by supply alone,” she said, pointing to geopolitical risks or stress among smaller developers as potential catalysts.

A weaker dollar continues to support foreign demand, although long-term drivers such as population growth and Dubai’s global positioning remain firm.

The coming 12 to 18 months will test the market’s ability to absorb elevated supply without destabilising prices. The base case suggests moderation, not collapse, with resilience supported by regulation, funding diversification and strong developer balance sheets. Whether that resilience holds will depend on sentiment and demographic momentum.