Dubai real estate 2023 investor outlook

For the past 20 years, Dubai property has provided investors with some of the world’s strongest real estate returns. Annual capital appreciation of over 100% was a regular investor outcome back in the early 2000s soon after the market opened up to overseas capital.

That said, the market has also experienced some lows in which investors who purchased at the wrong time suffered heavy annual decreases in their portfolio value.

Now, as we head through 2023 and beyond, there is growing investor sentiment that the Dubai property market is more mature, and investment returns more sustainable over the mid and long term.

Investor summary Dubai real estate 2023

Dubai’s real estate performance

  • Dubai property outperformed all other real estate markets last year
  • Some of the world’s highest property returns forecast for 2023
  • Very strong post-covid economy
  • A market largely insulated from interest rate rises
  • Occupancy rises and rents soaring
  • New visa rules fueling net migration and investment

A record-breaking recent past for Dubai property

2022 was a record-breaking year for Dubai property with investor demand leading to huge levels of real estate transactions.

Almost 65% more property was sold in Dubai in 2022 when compared to the previous 12 months. This led to an all-time high of USD 72 billion worth of real estate sales in an annual period.

This figure is even more remarkable given that 2021 itself recorded a similarly huge rise in transaction volumes over an admittedly covid-suppressed market.

On average, investors saw the value of their Dubai real estate increase by 11% over the 12-month period. This is a high annual return in any year, but particularly notable in a period in which many of the world’s other prime real estate markets have stagnated, or even recorded a loss in value.

Furthermore, investors also saw a surge in demand for their property from tenants. Occupancy across the emirate increased around 10 percentage points from 60% to 70% and rents increased by over 20%. Apartments are the most popular among the tenant market in Dubai, accounting for 84% of total rental contracts.

Global appeal

Dubai property attracted buyers from all over the world last year with Brits, Russians, Indians and Italians representing the largest volumes of foreign transactions.

One of the major shifts that has occurred in the market over the past 12 months is the flight from villas to apartments.

Traditionally, the Dubai property market has been an apartment-centric market. Much of Dubai’s population comprises skilled, young, single ex-pat workers who favour living in an apartment community close to their place of work.

However, as covid became more widespread across the globe, villas in Dubai became highly sought after by high-net-worth individuals. Subsequently, transaction volumes and asking prices – particularly on the Palm – fuelled much of the wider market growth in 2021.

When benchmarking against the start of the pandemic in January 2020, the average villa in Dubai has enjoyed capital growth of 34%.

However, over the past 2 quarters, as the world again became more accustomed to a more normal post-pandemic way of life, the apartment market has also recovered.

Apartment sales transaction volume surged over 70% last year, while villas, which did also have a supply issue, increased just less than 5%.

Dubai property market review

  • Average capital appreciation across Dubai in 2022: 11%
  • Notable submarkets include
  • The Palm – capital appreciation of 23%
  • Downtown – capital appreciation of 12%
  • Dubai Marina – capital appreciation of 25%
  • Average occupancy: 72% – an increase from 60% in 2021
  • Average rents increased by 21% over 2022
  • Average rents across Dubai in 2022 are AED 77 per sq ft
  • Supply growth +38,000 units in 2022

Dubai property outlook 2023 & beyond

As mentioned, there is growing investor sentiment that the future of Dubai property will be more sustained and mature than ever before.

Every investment has risk, and most property markets are cyclical to a greater or lesser extent, but previously Dubai represented the ultimate boom or bust dilemma.

The current growth curve in Dubai real estate began in mid-2020 and has gained pace, leading to the record levels of sales noted above. That said, even though the market will slow, most forecasts predict sustained strong returns for Dubai property – particularly in comparison to other major property markets favoured by global real estate investors.

Forecasts for Dubai property

Most forecasts offer a very positive outlook for 2023.

Prime Dubai property is expected to see around a 13% increase in value.

The mainstream Dubai property market is set for capital growth of around 5 to 7%.

Interestingly not only does this represent a compelling investment opportunity, but it also represents good value – and not even on a global stage. Despite year-on-year property price growth for 3 years, overall emirate-wide prices remain more than 20% below their 2014 peak.

The fundamentals of supply and demand are more concrete than ever before (see below), there is less speculative purchasing, and the market remains relatively insulated from the global interest rate rises that are hampering many other real estate markets. In fact, cash purchases are increasing in Dubai and currently account for 80% of the total value of all transactions.

Supply and demand

Many of Dubai’s past issues as a property hotspot can be traced back to an oversupply of property. More than ever before, investors feel this is no longer the case.

As already mentioned, many people relocated to Dubai during the pandemic and, as we shall see below, further visa changes have also contributed to a net increase in population recently.

What about the supply of new property? Last year less than 40,000 new units were added to the market. There are currently just 80,000 units slated for completion between now and the end of 2025, with around 30,000 coming to market in the next 12 months.

A report from Knight Frank recently highlighted that just 8 (eight) new villas are due in Dubai’s prime residential areas between 2023 and 2025 – and all of these will be constructed on the high-end Jumeirah Bay Island.

Furthermore, although apartments are set to represent the majority of new units – 63,000 or 77% of the total supply – between now and 2026, some popular submarkets will see very few new apartment units built. 50% of all apartments built in Dubai will be located in just 4 submarkets: Mohammed Bin Rashid City (17,000 units), Business Bay (8,000 units), Downtown (6,000 units) and Dubai Creek Harbour (5,000 units).

Wider Dubai property investment considerations

Given the increased maturity and more sustainable supply and demand, investors are starting to assess the prospects of further acquisitions in Dubai on a more macro-economic scale than ever before. Here are some of the main considerations:

More affordable than ever before

Considering its influx of ultra net high worths, its desirable lifestyle and its tax rules, Dubai remains one of the world’s most affordable luxury home destinations. And it’s getting more affordable – especially in the mainstream market.

A recent analysis revealed most of Dubai’s submarkets have property price-to-income ratios under the global affordable threshold, which is 6. The most affordable submarkets are Dubai South, JLT, Mohammed bin Rashid City and Business Bay.

This is good news for investors keen to purchase in 2023 – particularly first-time investors in the market.

It is likely that as more residents of Dubai become more acquainted with its higher salaries and they themselves enter the owner-occupier market, the number of buyers per property in Dubai will increase. This will aid current investors’ exit strategies and place further upward pressure on property values.

Conversely, there remain some very exclusive neighbours in Dubai. The 3 submarkets with the highest property price-to-income ratios are The Palm, Jumeirah, Emirates Hills and Jumeirah Bay Island – all 3 have ratios that are over 20.

Visas driving investment (and tenant) growth

Dubai is one of the world’s safest and most desirable places to live. Many investors purchase assets in the country in the hope of gaining residency in the emirate.

This practice has become easier and more widespread in recent years. Dubai’s Golden Visa is a government-backed scheme that aims to align real estate purchases with residency and offers a 10-year visa.

Recent updates and simplifications have streamlined the criteria (visas are now issued with some off-plan or leveraged purchases) while adding additional benefits and flexibility to the visa status.

Since it was introduced, the scheme has seen more than 150,000 golden visas be issued.

Similarly, the so-called digital nomad visa, aimed at bringing young tech workers to the emirate’s emerging tech sector, has also boosted net migration – and demand for rental properties close to key employment hubs.

Dubai’s population has already increased by 2% over the past 12 months to 3.55 million residents and it is on course to meet the 2040 target of 5.8 million residents.

Economic strength

Dubai can no longer be simply laboured as an oil economy. It has diversified significantly in recent years and now has one of the fastest-growing and most dynamic economies, not just in the GCC region, but in the world.

At the start of 2023, the World Bank increased the UAE’s growth forecast for 2022 and 2023 by 1.2% and 0.7% to 5.9% and 4.1% respectively. Again, diversification and growth from the non-oil sector that was seen as the major driver.

Furthermore, Dubai is also one of the world’s top locations for foreign direct investment with the UK (36%), the US (20%), France (10%), Singapore (5%), and Switzerland (4%) all major investors.

This article uses information from sources including Al Bawaba, UAE-EU, Gulf Business, Alarabiya News and Knight Frank.

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