Dubai: Rents, property prices could decline after 18 months
Analysts at S&P Global on Monday stated that property prices and rents in Dubai will remain constant for the next 18 months, and may, in the long term, decrease due to the enhanced supply caused by a surge in project global sponsors spin launches post the pandemic.
According to a note from the international ratings company, the Dubai property market should remain resilient, and there has been no correlation spillover impact from the regional geopolitical tension on the local market, due to demand from local and foreign investors and also several visa reforms which bring certainty.
It said rental rates will stop rising once the number of available units reaches a point where there is surplus in 2025, with the first surplus occurring in non-prime areas, and thereafter the wider market.
“In the next 18 months, property prices are expected to remain steady and may fall only after the expected supply comes into the market. A possible rise in supply could iron out the current unmet demand and in the long run, cause the prices and rentals to go down.
The consensus expects an increase of the stock of residential units by approximately 182,000 during the 2025-2026 period owing to the fact that a number of units sold off-plan during 2022-2023 will become available. This is a very high figure in relation to the average of 40,000 units delivered each year from 2019 to 2023,” said Sapna Jagtiani, primary credit analyst at S&P Global.
In the post-pandemic scenario, the demand is so high that we can see that the rents and the property prices in all the areas in Dubai are increasing over time.
However, she elaborated that as one of the determinants, would be the net annual increase in the population of Dubai which is estimated about 3.5% over the years 2025-2026 period and also the investor interest.
“Up till now, however, there are only limited procurement of deliveries in 2024 whereas 2023 was a relatively higher figure. Where this is the case, industry timelines for the delivery can be long. This is due to construction capacity challenges which always tend to be an effective constraint for the market and hence create support for pushing price increase in the short run. However, it is our view that the residential real estate market will correct and settle down as a norm by the year 2026 at the latest,” said Jagtiani.
Dubai returns exceed European markets
S&P Global estimates the population of Dubai reaching 4 million by the year 2026.
According to S&P Global,' the population of the region is on the rise. This, compounded with the already high rental prices across the area as well as high returns on investment per square inch ensures that Dubai is far more lucrative than many countries in Western Europe when it comes to the purchase of real estate. This explains why ‘off-plan’ sale transactions are twice as high as other types of sales.
To get more foreigners to invest in this sector this is exactly why the D33 agenda has been launched.
Dubai's economic outlook is still very positive; growth is expected to be steady in the foreseeable future especially more so through the dense geopolitical tensions in the region. More specifically, they do not see a direct conflict that will involve the United States and Iran for the foreseeable future due to a myriad of reasons. With this they predict an average growth of 3% in real GDP from 2024-2027, after a 3.3% growth in 2023 and a per capita income of $55,000 in Dubai by the year 2024.
New launches slowing down
This study suggested that the rate of new launches will reduce over the next 12 to 24 months as the market has until now absorbed the supply but this situation is not expected to be sustained in the long run.
‘’Although developers are in a strong cash collection position due to good demand for their units, we do predict that they will be flexible in adjusting launches to new project demand which is likely to be a situation where cheaper units are sold when prices are high. On the other hand, in a weaker environment we expect lower tier developers to begin softening payment plans in order to hold on to sales,’’ added Sapna Jagtiani.
As highlighted by Property Monitor in the report for the month of September, off-plan development projects which are new have also recently been launched not at a lower level but at a record activity level with a little more than 13500 launches and off-plan units placed at the market for anticipating selling worth a gross sales of Dh28.9 billion. In the first 9 months, new project launches were slightly less than 100 000 units in sales and 242.7 billion dirham in sales value in total. This volume of units launched in 2023 is above what was launched in 2023; however, in sales value it only increases by 30 bn dirhams.
In 2025, as it has been Kahn’s vision, developers will still concentrate on affordable and mid-range segments targeting the marginal buyers, he reduces further the share for the luxury segment. S&P reveals that “The volume of affordable and mid-market properties will be much greater than packs in a few luxury developments because the level of risk allows the developers to leverage the construction costs in New York City.”
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