As property prices hit a record high, specialists unveil the investment prospects that promise the highest profitability.
Dubai’s real estate market is flourishing, drawing interest from both local and international investors seeking lucrative property investments.
Despite the escalating demand for Dubai property and the consequent rise in prices, navigating the city’s dynamic real estate market is becoming increasingly complex.
In February of this year, there were reports of apartment prices rising by 0.83 percent compared to January, reaching a record high of US$352.31 per square foot, nearly 5 percent higher than the city’s previous market peak in 2014, as per the Property Monitor Dynamic Price Index.
According to Gabriel Tamman, a real estate expert at Tribeca Dubai, “waiting for lower prices entails risks, as prices are expected to continue rising.” Tamman noted that the Dubai landscape has evolved significantly since 2014, with a broader range of investors and residents being attracted to the city and the country, especially post-COVID.
“Rental price growth has outpaced sale price growth in recent years, and the sale price to income ratio remains healthy,” he added. Drawing from his industry insights, Tamman anticipates moderate price increases this year, ranging from five to 12 percent.
Bigger is better
Demand for villas and townhouses in the UAE has risen significantly, with up to 40 percent of home seekers now focusing on these properties, particularly those with three bedrooms or more, according to Property Finder, the largest real estate website in the country.
Younger buyers are playing a major role in driving this surge in villa ownership. “There has been a notable increase in interest from the younger demographic, with 39 percent of buyers under 40 years old in Q1 2024, up from 31 percent in Q1 2023,” said Mohamad Kaswani, VP of New Projects and MD of Mortgage Finder.
Savvy millennials are capitalizing on the upward trend in rental prices by identifying the long-term investment potential in spacious villa properties.
Dubizzle’s Dubai Annual Property Market Report highlights that rental prices in Dubai surged by up to 66 percent last year, with villa rentals experiencing some of the most significant hikes, averaging $88,400 annually.
Market conditions favour villa ownership
The allure of villa ownership extends beyond the affluent demographic, as buyers across various income brackets are capitalizing on the opportunity to upgrade to larger living spaces, thanks to flexible payment plans.
Since the recalibration of the RERA calculator earlier this year, nearly 50 percent of buyers earning less than $13,615 (50,000 AED) monthly have invested in villas, marking a significant increase from the 37 percent recorded in Q1 2023.
The combination of flexible payment plans and low interest rates has led to an increasing number of tenants opting for a down payment on a property, as rental renewals become less affordable. These conditions also create a favorable environment for homeowners looking to upgrade to larger living spaces.
In terms of return-on-capital gains (ROCG), last year proved highly profitable for villa owners across several areas in Dubai.
The highest ROCG increase was observed in Palm Jumeirah, at 41 percent. However, this surge was not confined to Palm Jumeirah, as Dubai Hills Estate saw a significant ROCG increase of 38 percent for five-bedroom villas. Furthermore, Arabian Ranches experienced an uptick in the average asking price of four-bedroom villas by 34 percent (ROCG) and five-bedroom villas by 29 percent.
Although the demand for villas remains strong, recent data indicates a 30 percent decline in villa launch volumes since the beginning of the year.
“Despite the sustained demand for villas, developers are slower to respond to this surge, primarily due to limited land acquisition opportunities,” stated Prathyusha Gurrapu, Head of Research & Consulting at Cushman & Wakefield Core.
However, for prospective home buyers looking to invest in Dubai property in the near future, the overall supply of residential properties, including expected delivery figures, remains consistent with forecasts, indicating no significant oversupply concerns, the company noted.
Areas in Dubai offering investment opportunities
Home seekers interested in profitable investment opportunities should explore areas beyond the renowned luxury districts. Kaswani recommends prioritizing locations with accessibility to key hotspots, including metro connectivity and convenient transportation options.
“With the approval of the blue line project, we anticipate enhanced connectivity in various areas. Identifying properties offering these amenities and close proximity to public transit can lead to better growth prospects and long-term returns on investment,” Kaswani remarked.
According to a recent CBRE report, properties situated within a 15-minute walk of metro stations tend to experience higher price and rent appreciation compared to the broader market. The analysis of over 300 residential or mixed-use properties revealed an average price increase of 43.8 percent and a rental price increase of 26.7 percent around metro stations.
Consequently, neighborhoods such as Jebel Ali, Dubai Investment Park, Dubai South, and adjacent districts, linked by the blue line, are poised to witness increased demand for residential and commercial properties.
Inland high-end residential developments are also witnessing a surge in demand and offer lucrative opportunities. These encompass areas like Dubai Hills, Arabian Ranches, Al Barari, Tilal Al Ghaf, Jumeirah Golf Estates, and Emirates Hills. These projects prioritize sustainability, emphasizing energy efficiency and green spaces, making them appealing to high net-worth individuals (HNWIs) globally.
Dubai has seen a record 402 residential properties sold above AED 20 Million since the start of the year, reflecting a 40 percent year-on-year increase. The majority of these ultra-prime transactions are concentrated in inland areas, as well as Jumeirah Bay Island and Palm Jumeirah.
Apart from these locales, Business Bay has also witnessed heightened interest from the ultra-rich for properties.
“Business Bay has become highly desirable, thanks to new landmarks such as the Lana Dorchester Hotel and forthcoming developments like Casa Canal by Killa and the Rings by Norman Foster,” Tamman concluded.
Affordability appeal attracts more foreign investors
Kaswani stated that in comparison to other major cities like London, Paris, and New York, the current housing market in Dubai still presents affordable pricing, offering 3 to 3.5 times more value for money.
Despite some opinions suggesting that other housing markets might exhibit greater resilience, Property Finder has observed positive developments in Dubai, making it a more secure investment option than ever before. Kaswani emphasized that Dubai is outperforming several key global economies, with increasing foreign confidence and a larger share of property seekers looking for long-term investments.
For homeowners contemplating long-term investments, Property Finder has consistently reported returns ranging between 7 and 9 percent annually. This not only surpasses yields in cities like London and New York, which typically range between 4-6 percent, but also indicates a maturing market rather than one experiencing significant fluctuations.
