Does Dubai’s luxury property market still offer opportunities for investors?

Investors looking to enter Dubai’s luxury property market this year will need to brace themselves for what could be a record year for capital values.

Even as the pandemic-fuelled global property boom begins to abate, UAE demand is being helped by a limited supply of homes at the top end of the market, visa reforms and the role of property as a hedge against inflation.

“The uptick in the market since 2021 is still continuing, making many valuators and sellers price properties in anticipation of an upward trend,” says Chris Whitehead, managing partner at Luxhabitat Sotheby’s International Realty, which sold two of the top-value villas this year.

“This, combined with the reduced supply in the luxury properties segment, means there is at least a 3:1 ratio of buyer to a sought-after property.

"Naturally, this results in each transaction pushing the boundaries furthermore, which is why we are seeing more and more record transactions.”

Capital values in Dubai’s residential sector have expanded significantly over the past 12 months, particularly at the top end of the secondary market.

The wider residential market saw prices increase by 10.9 per cent in the year to May 2022, real estate consultancy CBRE says.

Villa prices rose 19.8 per cent, while apartments had an increase of 9.6 per cent.

But prime residential units — in Palm Jumeirah, Emirates Hills and Jumeira Bay Island — surged by 58.9 per cent over the past 12 months, according to a report by global consultancy Knight Frank.

It estimates that villa and apartment transactions between January and May 2022 alone were worth Dh61.9 billion ($16.85bn).

“Villas remain highly sought-after, not just by domestic buyers, but also by international high-net-worth individuals who continue to flock to the city to snap up the emirate’s most luxurious homes,” says Faisal Durrani, head of Middle East research at Knight Frank.

Investors rethink their priorities

Overall sales are being driven principally by foreign investors, Reuters reported in a May 30 poll of 13 property market analysts.

India and Europe remain strong source markets, according to Dubai-based property consultants Mira Estate.

Worldwide, economic interventions such as quantitative easing and low interest rates fuelled real estate demand during the pandemic, as lockdowns forced people to rethink their priorities.

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“One could say the UAE was ready for this change and has the right solutions for local and international high-net-worth buyers, with multiple new developments located on the periphery of the city’s epicentres, which promised housing solutions with an enhanced community experience,” says Ari Kesisoglu, president of listings portal Property Finder.

Government initiatives, such as the expansion of the 10-year Golden Visa programme and new types of residence permits for retirees and remote workers, have contributed to rising prices.

A rapid Covid-19 vaccine campaign and the high-profile Expo 2020 Dubai further improved investors’ perception of the UAE.

“Simply put, Dubai offers greater lifestyle, security and value for money than other major cities in the world,” says Peter Smithson, sales director at Belleview Real Estate.

The government’s response to the pandemic means that investors have now added stability to that list, Mr Smithson says.

“When compared against other nation’s responses, this added stability is a major driving force in high-net-worth individuals flocking to Dubai, driving up demand for the luxury segment and subsequently causing a steep rise in property valuations,” he says.

Belleview set a new record for a Dubai property sale in March with a 10-bedroom beachfront villa on Palm Jumeirah for Dh280 million ($76.2m). The sale breached the previous high of Dh185m set in 2015.

Dubai villa prices — May 2022 — in pictures

Dh45m Palm Jumeirah villa

VILLA PRICES: Palm Jumeirah: Dh3,207 per square foot — up 5 per cent a month in May (they went up 5 per cent in April).

Rising inflation could also be playing a role in Dubai. Real estate is seen as a traditional hedge against rising prices because the asset class usually has little correlation with stocks and bonds.

Inflation in Dubai rose to an annual 4.6 per cent in April compared with 1.1 per cent in December 2021.

“With price growth expected to hover at about 5 per cent to 7 per cent this year for Dubai's mainstream market and 12 per cent to 15 per cent for prime properties, residential property in the emirate is still an excellent inflation hedge,” Knight Frank said in its report.

Although the overall market is likely to be more subdued, Mr Durrani says prime and ultra-prime homes would fare better, given the depth of demand for top-end luxury homes and the sheer lack of properties for sale in the sector.

Internationally, by contrast, inflation has tamed the record property values prompted by more than 10 years of rock-bottom rates.

Some more discerning buyers are heading to affordable luxury properties further away from the city centre.

Mr Kesisoglu mentions The Valley, Akoya, Dubai Hills Estate, Town Square and Dubailand, where prices are more competitive.

Dubai Hills, an Emaar community, has recorded more than Dh3 billion in sales so far this year, the Dubai Land Department says. Photo: Luxhabitat Sotheby’s International Realty

Ten most expensive villas sold in Dubai this year

There have been 10 transactions priced at more than Dh75m each since the start of this year, most between March and May, according to data compiled for The National by real estate platform Property Monitor.

All were in the prime areas of Palm Jumeirah, Emirates Hills, Dubai Hills, Jumeira Bay and District One.

1. Palm Jumeirah — Dh280m

At Dh280m, a custom-built, 33,000-square-feet villa on Palm Jumeirah’s Frond N broke the Dubai property sale value record in March. The 10-bedroom villa sits on 70 metres of private beachfront and has Italian marble interiors and furnishings from top-tier brands Giorgetti and Minotti. Belleview brokered the sale.

2. Dubai Hills Grove mansion — Dh128m

Last month, Luxhabitat Sotheby’s International Realty closed a deal on the most expensive villa in Dubai Hills, for Dh128m. The new 34,113 sq ft, seven-bedroom mansion in Dubai Hills Grove cul-de-sac has a view of the golf course. Dubai Hills Grove is home to just 26 mansions, all valued in excess of Dh100m. They were sold shell-and-core, so owners could customise them.

The highest-value transaction this year in Emirates Hills was the sale of a Dh102.8 million villa in May. An Indian entrepreneur bought the villa from a Maltese businessman. Photo: Phoenix Homes

3. Emirates Hills — Dh102.8m

An Indian entrepreneur bought the highest-value property in Dubai’s “Billionaire’s Row” in May. At Dh102.8m, the residence features a built-up area of more than 20,000 sq ft, with five bedrooms, a private cinema, gym and swimming pool. Phoenix Homes represented the Maltese seller in the transaction.

4. Dubai Hills View — Dh96m

In April, a villa in Dubai Hills View, a sub-community within Mohammed bin Rashid City, sold for Dh96m, Property Monitor data shows.

5. Jumeira Bay — Dh88m

The man-made island of Jumeira Bay saw its most expensive transaction in February, when a villa sold for Dh88.2m, according to Property Monitor. The development has recorded the highest residential price per square foot in Dubai.

6. J27 at Palm Jumeirah — Dh87m

Knight Frank brokered a deal for J27, a custom-built villa on Palm Jumeirah’s frond J in January. Highlights include six bedrooms over three floors, a large infinity pool and a roof terrace overlooking Ain Dubai. Inside, granite and onyx from Brazil are used across the property, with hand-blown Italian glass sinks in the washrooms.

This custom-built villa on Palm Jumeirah’s frond J featuring six bedrooms over three floors was sold for Dh87 million in January. Photo: Knight Frank

7. District One villa — Dh85m

In May, a villa in District One’s Cluster C sold for Dh85m. The development is home to contemporary, Mediterranean or modern villas and is part of Mohammed bin Rashid City.

8. Six Senses villas — Dh80m+ each

Two villas that are part of the Six Senses Residences development on Palm Jumeirah were sold on May 17 and May 18 for Dh82.1m and Dh81.8m, according to Property Monitor. The 60,000 sq ft complex has only nine seaside villas and 32 sky villas.

9. Emirates Hills — Dh75m

In May, Emirates Hills had a 30,000 sq ft villa sell for Dh75m just about a year after it last changed hands. Luxhabitat Sotheby’s International Realty closed the deal on the property, which is designed by Miami architectural practice Kobi Karp. More than 13 Emirates Hills villas have been sold in 2022 so far, at an average transaction price of Dh35.2m, Luxhabitat says.