Dubai has always been a popular destination for international investors, and the real estate market has exploded in the 2000s.
Dubai’s housing market has underperformed in recent years. There are many causes for this, the most important of which being oversupply. If you’re thinking about buying real estate in Dubai, you should know how strong the market is and anticipate in the next year.
In this post, we look back at how the market has performed in past years, provide facts and figures, and discuss our predictions for 2021.
Topics addressed include:
- The Property Market in Dubai in Previous Years
- The COVID-19 Pandemic and Dubai’s Property Market in 2020
- What will the property market in Dubai look like in 2021?
The Property Market in Dubai in Previous Years
Since mid-2013, the market has been volatile, with some of the worst years occurring between 2015 and 2016 when real estate values plummeted. From 2017 to 2018, the market was in recovery mode.
Prices and rents haven’t dropped as much as they had in prior years. According to Savills, the average sales price declined by approximately -5.6 percent in 2017, while average rentals dropped by -7 percent.
It’s what we’d call a pricing adjustment.
Oversupply of properties, an inflated market, and a poor economy were the primary causes of the collapse. This tiny city had 30,000 cranes between 2004-2006, which is equivalent to 25% of all cranes globally, which I think is self-explanatory.
Oil Prices Are Declining
A decrease in oil prices had harmed the UAE’s economy and real estate markets, especially in 2020, when prices became negative. From 2014 to 2015, the market also fell.
Even though oil accounts for just 5% of Dubai’s GDP, it significantly affects the whole economy. The UAE’s main export commodity is oil, and the recent decrease in oil prices has had a detrimental impact on the market.
A Bullish Dirham
The Emirati Dirham (AED) has appreciated against key regional currencies and certain foreign currencies in recent years, making real estate more costly for investors from India, China, Pakistan, and the United Kingdom.
The Dirham, on the other hand, has lost approximately -10 percent against the RMB since July 2020. We’ve only observed small swings between the two currencies since the Dirham is linked to the US dollar.
During the first nine months of 2018, Indians and Pakistanis were the second and fourth-largest investors in Dubai, respectively.
Between January and November of that year, the Indian and Pakistani Rupees depreciated against the Dirham by approximately -14 percent and -17 percent, respectively, decreasing the buying power of these nations.
While the Indian Rupee has stayed relatively steady against the Dirham, the Pakistani Rupee has lost almost 50% of its value against the Dirham between early 2018 and early 2020.
It’s also worth noting that throughout the first three quarters of 2018, there was a substantial drop in real estate sales. Due to lower pricing, we witnessed record-high sales volumes in October, making the property more appealing to both domestic and international buyers.
In Dubai, there is an oversupply of property
Property developers have been concentrating on high-end and luxury residential developments in recent years.
However, as wealthy investors’ interest and demand have waned, developers have shifted their attention to more affordable residential apartments.
The excess is wreaking havoc on areas like Downtown Dubai. Prices have dropped by 30% in the last five years, owing mainly to a chronic oversupply.
According to many real estate experts in Dubai, the mortgage limit is the greatest factor in the price decrease. We observed an immediate drop in prices when the mortgage limit was implemented in 2013.
To calm the rapidly expanding market, the government had no other option than to impose a mortgage limit. Local Emiratis must make a 20% down payment when writing this article, whereas ex-pats and other foreigners are limited to a 25% down payment.
The mortgage limit impacted a large portion of the consumer market since foreigners make up 89 percent of Dubai’s population.
What will the property market in Dubai look like in 2021?
With the market bottoming out in 2021, Dubai will most likely witness moderate price reductions.
Despite the efforts of major developers such as Emaar to limit the supply of new units, more than 50,000 apartments will be launched in 2021.
Damac Properties PJSC, one of the world’s largest real estate developers, thinks that Dubai would continue to struggle in 2021 and 2022 due to the coronavirus’s impacts, which lowers property values.
Since 2014, prices in Dubai have dropped by more than -30 percent, owing to a glut of inventory. This prompted the government to establish the so-called Higher Committee of Real Estate to control supply and demand.
While some think the market has already flattened out due to significant price drops since 2014, big companies such as Damar remain skeptical.