Around March this year, Dubai was seen as the world’s fourth busiest market for luxury real estate. As of last week, Dubai became the world’s most active luxury market with around $1.6 billion worth of prime home sales during the third quarter.
For those of us used to slower summers in the industry, the past few years have been a surprising - but very welcome - change of pace. One of the key takeaways from any news on market performance is how it’s affecting the pricing.
Looking at the market as a whole, property prices are up 14 per cent from where they were at the same time last year. And an astonishing 36 per cent from the third quarter of 2014 – one of the market’s previous ‘peak’ years.
What does this mean for buyers moving forward? Is Dubai real estate becoming unaffordable? The short and blunt answer is yes – but it’s not quite as simple as that.
What can you get for $1m in Dubai?
Outside of the super-prime segment, it’s fair to say that purchasing power has gone down for many buyers, as a result of steeper prices and rising interest rates. Back in 2018, there was a lot of discussion about how much property $1 million (Dh3.67 million) could buy.
Analysis showed that $1 million would buy a property of around 1,485 square feet in Dubai, which was three to four times the size of what you might get in London, New York, or Hong Kong. If we revisit that question in 2023, the answer changes slightly – for $1 million, you can buy a home of roughly 1,130 square feet, which is 23.9 per cent smaller.
If we revisit that question in 2023, the answer changes slightly – for $1 million, you can buy a home of roughly 1,130 square feet, which is 23.9 per cent smaller.
The numbers clearly demonstrate that your dollar doesn’t go quite as far in Dubai as it used to, which is in line with the broader economic trend. However, while the absolute figures have gone up, Dubai still offers you three times as much space on average compared to other global luxury markets. Monaco, for instance, gives you one tenth the space you would get in Dubai for the same price.
Dubai’s value proposition
The underlying point in both of the above situations is the value that buyers are seeing in the Dubai market. And without a doubt, there is a tremendous level of value to be found. Unlike many of its global contemporaries, Dubai is still in the process of growing.
Buyers and investors who bought into Dubai Hills during the early phases of its development can see how much the community has changed in 5 years - construction sites have transformed into neighbourhoods, the entire area is landscaped, connectivity to major highways is open, and key amenities such as King’s College Hospital, Dubai Hills Mall and Dubai Hills Business Park are operational.
In a fairly short span of time, it has gone from a distant suburb to a central, fully realized community that offers a plethora of amenities. The price increases in the community reflect that growth in value.
If we look at an area like Prime Central London, the districts in that area haven’t changed significantly and unlikely to see much redevelopment in the near future. On a per square foot basis, you may find some comparable options with Dubai in terms of pricing, but in terms of potential for capital growth, Dubai has a definite edge.
Looking outward with caution
Turbulent activity in external markets has helped to boost Dubai’s real estate market over the past two years, primarily because it has highlighted the city’s strengths and the benefits it offers to potential buyers.
It is easier than ever to set up and operate a business here, to obtain sponsorship and benefits for family members, to manage legal affairs such as wills and inheritance, and to obtain long-term residency. From a geographical perspective, the city still has room for growth. There is plenty of untapped potential in areas that have become the new suburbs of the city and have the capacity to become important urban centres.
Amidst all the talk about prices, discussions about value are essential. The primary concern is not about how things will change internally, but about how external markets will continue to behave over the next few months and how Dubai will adapt to that behavior and enhance its value proposition on the global stage.