How will Dubai and Abu Dhabi property markets perform in 2023?

Prices and rents soared in Dubai in 2022, but will the momentum continue into the new year?

Dubai Marina is popular with both buyers and those looking for a place to rent. Razan Alzayani / The National

The UAE property market, and Dubai's in particular, has experienced quite a year.

Records tumbled with regularity as prices and transactions soared amid a strong economic recovery from the Covid-19 pandemic, plus the hosting of Expo 2020 Dubai and the nearby 2022 Fifa World Cup.

Despite global economic headwinds, high-net-worth individuals have flocked to the UAE in the past 18 months, which has given impetus to the luxury market. The number is expected to rise by 22 per cent in the next five years, according to Savills.

Prices in Dubai's prime sector are likely to end the year about 50 per cent higher than 2021, Knight Frank said, as a lack of high-end supply failed to match demand.

Dubai's real estate market is set for a record-breaking year in 2022 after registering 88,028 sales transactions as of November 2022, up from 60,258 transactions in 2021, according to Property Finder. This represents a significant increase of 46 per cent and surpasses the market peak in 2013 by 38 per cent.

Knight Frank forecasts the city to have the highest prime price growth in the world in 2023, ahead of the likes of Miami and Paris.

“We believe that the luxury supply chain in 2023 is going to be limited to approximately 300 to 400 units,” said George Azar, chief executive of Luxhabitat Sotheby's International Realty.

“And we believe that within that market, the demand for this price point will remain quite strong.

“In terms of transactions, we will need to manage sellers’ or developers’ pricing expectations because it is not that there are less buyers, but the sellers are seeking to achieve a very high price point; sometimes for more money than the property is worth.”

Among the records in 2022, was Dubai's most expensive property — a villa on The Palm Jumeirah that was sold for Dh302 million, while another villa on The Palm was rented out on a six-month basis for Dh4 million, and monthly sales totals surpassed previous highs throughout the year.

Dubai's “Billionaires' Row”, which sits on Frond G of The Palm Jumeirah, is now said to be “the most exclusive street for Dubai’s rich and famous”, according to Murat Ayyildiz, the chairman of Alpago Group, which has developed six signature villas there.

Three of the six villas have sold, the most recent of which cost Dh130 million.

Market stability has been a key factor in its performance this year, according to Mark Richards, sales director at LuxuryProperty.com.

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He said the impact of rising interest rates on finance buyers has not led to a fall in overall buyer activity.

“Where prices have gone up, a different demographic of buyer is moving in,” he said.

“As for the buyers who have been priced out — they are expanding their horizons. If a four-bed home in Dubai Hills is more difficult to get a mortgage on, buyers will look to Arabian Ranches, Mudon and other communities that are a bit further out, but still tick all the right boxes in terms of home quality and community atmosphere.

“That being said, the city’s infrastructure is changing to accommodate these changes — we have seen new roads being added to facilitate access to and from these communities.”

He added that he is seeing buyers who find the market to be too expensive and opt to go for a rental instead, then realise how expensive the rental market has become, and come right back to the buying market with adjusted expectations.

Dubai's population, which crossed 3.5 million in April, is expected to continue to grow, surging to 5.8 million by 2040, bolstered by a new wave of post-pandemic immigration, experts said.

A host of visa changes have made living and working in the UAE more attractive for foreign workers and Richard Waind, group managing director at Betterhomes, expects demand in 2023 will remain healthy as the key push and pull factors driving migration to the UAE remain in place.

“War, global uncertainty and increasing tax burdens globally are likely to keep people and capital flowing into the UAE, while the UAE government will continue to innovate to attract the best talent,” Mr Waind said.

“Supply in the secondary market will remain under stress, with handovers lagging behind population growth. The supply and demand equilibrium is likely to rebalance in 2024 as the most recent wave of new launches comes to fruition.”

Mr Waind expects demand from the traditional European and Asian subcontinent markets to continue, and expects a return of Chinese investors in 2023 as the country slowly emerges from its “zero-Covid” policies and wealthy people once again look to invest overseas.

Ras Al Khaimah's planned multibillion-dollar resort on Marjan Island with Las Vegas hotel operator Wynn Resorts will be one to keep an eye on, Mr Waind said.

The rise in rents in Dubai has led to an increase in rental disputes and eviction notices as landlords seek to make the most of the market conditions.

Some tenants have been willing to pay increases above the rental rates stipulated by Rera to avoid a dispute and the potential of incurring moving costs. Ultimately, they have ended up paying higher rental rates for a new lease agreement.

Paying annual rent with one cheque is on the rise again in Dubai.

“This year, we have already seen rental records being broken with the most expensive rental in Dubai history and the most expensive in Jumeirah Islands — there are definitely quite a few multi-million-dirham rental contracts to be signed next year,” said Simon Boden, leasing director at LuxuryProperty.com.

“The simple fact is that tenants are willing to pay more for an exceptional property, and scarcity gives every home that extra air of exclusivity.”

Apartment rents in Downtown Dubai were up 24 per cent annually in the third quarter, while villa rents in Arabian Ranches had risen 27 per cent and Springs villas were up 24 per cent, data from property consultancy Asteco showed.

There was a strong performance in the capital's market as well in 2022.

Abu Dhabi's property market recorded 4,441 transactions amounting to $5.7 billion (Dh21.04 billion) in the third quarter. In comparison, transactions for the third quarter of 2021 reached a total of Dh16.2 billion.

Yas Island topped the list for highest value of transactions with Dh1 billion ($272 million). It was followed by Saadiyat Island with Dh929 million worth of transactions during the period from July to September.

Major property projects have been launched in the capital this year, including Aldar Properties' Saadiyat Lagoons, Yas Park Gate and Grove District on Saadiyat Island.

Other projects include Reem Hills on Reem Island, Bloom Living, close to Abu Dhabi International Airport, and the second phase of Imkan's Riviera development on the coast between Abu Dhabi and Dubai.

“2022 has moved fast with strong sales across the board, from studio apartments for investors up to large golf course or sea-front villas for owner occupiers,” said Andrew Covill, director at Henry Wiltshire International.

“We expect the same pattern to continue in 2023 — with the current stock shortages we see for villas or quality apartments with sea views. While there have been new developer launches for villas, these will not be delivered for another three to five years leaving a big squeeze on supply of completed villas in the meantime.”

The rental market was largely stable throughout 2022, with Hidd Al Saadiyat standing out with a 9 per cent annual rise in the third quarter.