Will there be a real estate bubble in Dubai?

Experts assess the risk of a bubble in the Dubai real estate market as low. Such data are provided in the annual report of the Swiss financial holding UBS. Why the experts made such a conclusion, we will consider further.

Dubai Property Bubble – Is There a Risk?

UBS annually assesses the risk of a real estate bubble in 25 megacities around the world. For several years in a row, Dubai has become a city where the risk is assessed as the most minimal.

The rating measures how overvalued real estate is and divides the cities under study into several categories: high bubble risk (“red zone”), overvalued property (“yellow zone”) and fair value market (“green zone”). To evaluate, experts use a combination of factors: the cost of real estate and rent, household incomes and economic indicators of cities and countries.

Source: UBS

Property in Dubai has a fair value, according to the UBS Global Real Estate Bubble Index 2022 report. Due to this, the risk of a bubble is assessed as low.

In 2020 and 2021, Dubai consistently ranked last in the “anti-ranking” of metropolitan areas with the highest risk of developing a real estate bubble. In 2022, it gave way to Warsaw, but both cities have approximately the same indexes.

Dubai Property Market Trends

UBS experts analyzed the situation in the Dubai real estate market and made the following conclusions.

• Property prices in Dubai have increased by about 10% in a year. The most significant increase in prices was noted in the primary housing market.
• After 7 years of decline, prices are back to 2019 levels, but still 25% below the all-time high of 2014.
• The growth of the market was favorably influenced by the increase in oil prices and how quickly the UAE economy recovered from the COVID-2019 pandemic.
• The real estate market in Dubai will be strengthened thanks to the competent visa policy of the country and the influx of highly qualified foreign specialists with high income levels.
• Rents in Dubai increased by an average of 22%. Expat tenants will subsequently become property buyers after they settle in a new country.
• House price growth will remain high in the near term, but the pace of growth will gradually slow down.

Which cities are at the highest risk of developing a bubble?

The highest risk of developing a bubble is observed in Toronto, Zurich and Frankfurt. The “red zone” also includes Vancouver, Munich, Tel Aviv, Hong Kong, Amsterdam and Tokyo.

According to UBS, the top five in terms of rising real estate prices included 4 American cities at once: Miami, Los Angeles, San Francisco and Boston.

Despite this, US cities do not have the greatest risk of developing a bubble due to rising incomes of the population.

On average, for all 25 analyzed megacities, the growth in real estate prices amounted to 10% per year (according to data for mid-2022 compared to the same period in 2021). This is the biggest increase since 2007. The price of real estate in the suburbs is growing at a faster pace, but in the post-pandemic period, people are gradually starting to return to the cities.

Experts recorded a significant increase in outstanding mortgages, the highest since 2008. Mortgage rates on average in cities have almost doubled. UBS analysts conclude that, compared to the period before the pandemic, about a third fewer skilled workers in the service sector can afford to buy real estate.

In general, in all cities, the real estate market shows a high level of imbalance. Real estate prices grew faster than the cost of rent and incomes of the population. In a few years, prices have risen by 60%, while revenues have risen by only 12%.

As can be seen from the UBS Global Real Estate Bubble Index 2022 report, Dubai remains one of the most attractive cities for real estate investment. Despite rising prices, the risk of a bubble in the Dubai real estate market is minimal, and the property itself has a fair value. This means that buying a home in Dubai is a profitable investment.