Dubai remains one of the few major housing markets where buying a home is relatively attractive compared with renting, despite elevated property bubble risks, according to a new UBS report.
The emirate’s high rents continue to favour homeownership even as its score in the UBS Global Real Estate Bubble Index rose to 1.16 from 1.09 last year, placing it fourth among 23 cities surveyed.
It ranks alongside Miami, Seoul, Geneva and Lisbon in the elevated-risk category. Zurich and Tokyo were the only cities assessed as being at high risk.
UBS said the risk has eased since the start of the Iran conflict, as the property boom loses momentum. Inflation-adjusted home prices rose just 0.4 per cent annually in the second quarter, while real rents fell 4 per cent.
The UBS Global Real Estate Bubble Index gauges the risk of a property bubble based on certain criteria, including decoupling of prices from incomes and rents, as well as imbalances in the real economy, such as excessive lending and construction activity.
The index does not predict whether or when a correction will occur. A shift in macroeconomic conditions, changing investor sentiment, or a significant increase in housing supply could trigger a decline in house prices.
“Existing tenants are likely to take advantage of the pause in price growth and, in some cases, of price concessions when purchasing a home,” UBS said. “Despite elevated mortgage rates, Dubai remains one of the few markets where home ownership remains relatively attractive given the high cost of renting.”
Despite the elevated risk, Dubai remains one of the most affordable housing markets in UBS’ study, with a skilled service worker needing only five years of income to buy a 60 square metre apartment near the city centre when compared to 11 years in London and 15 in Hong Kong.
Dubai sits just above Toronto and Miami among surveyed cities in affordable housing markets.
Tokyo, Paris and Seoul are also categorised among the least affordable markets, requiring more than 10 years of average income to own an apartment. Affordability is also stretched in Singapore, Lisbon, Zurich, Geneva, Sao Paulo, Munich, Sydney, Milan, and New York, where local wages are insufficient to support home ownership.
Uncertainty about a recovery of the inflow of high-income earners due to the Iran war is expected to weigh on the premium segment of Dubai’s property market, UBS said.
However, Dubai’s structural advantages, including its strategic location and attractiveness as an international business hub, remain firmly intact.
“An improvement in the geopolitical environment is likely to support a rapid recovery in market sentiment and price expectations,” UBS said.
UAE property prices are continuing to climb, but growth has started to cool amid continued regional tensions.
Dubai residential prices climbed by about 1.9 per cent annually in the second quarter of this year, with apartment prices increasing by 1.3 per cent and villas by 5.7 per cent, according to consultancy CBRE.
The property market in Dubai is set for a “nice balance” next year despite softening due to the Iran war, as the sector goes through a period of adjustment, Emaar Properties founder Mohamed Alabbar said this month.
“I'm getting ready for 2027,” Mr Alabbar told delegates at the AIM Congress in Dubai. “A lot of supply is coming in, so I think there'll be a nice balance in the city.”
When asked to predict the impact of the continuing Iran war on Dubai’s broader real estate sector, Mr Alabbar said: “I would say that an adjustment of 5 per cent to 10 per cent because it's an extraordinary situation.
“But then again, you know, if the situation settles, God knows what could happen in this market. It could become pretty fast [paced],” he added.
