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One of the key differentiators in Dubai’s market performance over Covid - as compared to other global crises - is that the market was not affected by financial factors.

If we take the global recession of 2008-09 as an example, the situation was a result of poor lending practices that ultimately forced banks to cut back. Covid didn’t have any such impact on the financial sector, allowing homebuyers to easily avail of mortgages in a rising property market.

When interest rates were raised in 2022, particularly after the increases that happened in October last, there was much speculation that it would impact on the property market across the last quarter of the year. The full impact was expected to be felt in January – but that didn’t happen.

In fact, the volume of real estate sales increased by 128.5 per cent year-on-year, a clear indicator that the market is not looking to slow down anytime soon.

An elastic demand

How is that possible? The simple answer to that is demand remains incredibly high. We have seen an increasing level of property enquiries since late 2020 and changes in pricing or market conditions haven’t caused that to drop. What they have done instead is change the nature of that demand.

A good example of this is Dubai Hills Estate. When the community was launched, it catered to a spectrum of buyers. Looking specifically at villa communities, you had different tiers – Hills Grove and Hills View offered bespoke mansions; Parkway and Fairway Vistas covered the prime segment; and Maple and Sidra were considered affordable luxury, providing a relatively low buying threshold into the community.

Cash buyers flock to the Hills

However, as property values increased across Dubai, this has caused a significant shift in the affordable luxury segment - Maple and Sidra have grown in value by 12.07 per cent and 20.23 per cent, and have edged their way into the prime market (which starts at roughly Dh5 million).

Homebuyers who could previously stretch their budgets by getting a mortgage for a Sidra villa were now priced out. For properties priced above Dh5 million, the mortgage down-payment goes from 20 per cent to 30 per cent - a considerable jump, and especially daunting with higher mortgage rates.

Yet, transaction volumes in Dubai Hills went up nearly 37 per cent year-on-year. Why?

Because the demographic of buyers in the community has changed. Where finance buyers are losing out due to raised interest rates, there is significant demand from cash buyers to fill that void. This also creates a bit of a domino effect where demand rises in the communities still considered quite affordable – for example, Arabian Ranches 2, Town Square, and Mudon – as finance buyers flock there instead.

The net result is a continued uplift in the market.

It has proven to be a very interesting time for Dubai real estate. From post-Covid to the recent FIFA World Cup in Qatar, global events helped to position Dubai ass the city to be in. Now that we are coming out of the pandemic on a global scale and there isn’t any major event being hosted by Dubai in 2023, could any further rises in interest rates lead to the slowdown that was expected months ago?

In all honesty, it’s hard to be certain. I think at this point, Dubai has established its presence in a way that it doesn’t need an ‘event’ to be noticed. Given the volume and level of enquiries that we are receiving on a daily basis, that slowdown might be even further off than we think.

I for one am very excited to see what the rest of 2023 brings.