Real estate in Dubai enjoyed another bumper year in 2022, breaking all transaction records and setting new highs for prices in the luxury sector.
But while brokers have been celebrating at parties across Dubai this December, the story is very different for much of the rest of the world.
Reuters reported this week that house prices are expected to fall by 12 per cent in the US in 2023, while the UK looks even bleaker, with Bloomberg reporting that prices could fall as much as 30 per cent by 2024.
The juxtaposition between these headlines and those in the UAE about the booming housing market is stark.
Dubai is a very different proposition to the real estate market's 2009 downturn.
And by understanding what is driving our market and the slowdown elsewhere, we can start to expect to read a different script this time for Dubai.
Global real estate markets did well during Covid as the value we all placed on homes as somewhere we not only lived, but also worked, exercised and educated, skyrocketed.
Flexible working allowed for the migration of populations out of cities and into larger, rural properties.
But those good times hit the skids in 2022 as inflation, and the resulting higher interest rates, became a reality for the first time in a generation.
Interest rates rose from near zero in January to more than 4 per cent by the close of the year, affecting buyers’ affordability.
Higher interest rates have never been good news for the real estate market and these rate increases are the main cause for the property slowdown seen across the US and Europe in particular.
While higher interest rates in the West are having a devastating effect on real estate markets, Dubai is far less exposed to interest rate increases because of the high prevalence of cash buyers and also because it benefits from higher oil prices, currently one of the key drivers of global inflation.
Cash buyers in the US account for about 22 per cent, according to the National Association of Realtors. In the UK, 31 per cent of property purchases are made with cash.
In the UAE, cash buyers represent more than 70 per cent of purchases on average, largely due to the international nature of the market, according to Better Homes' data.
So, while we have seen higher interest rates having a cooling effect on rising prices, the market here so far has taken these increases in its stride and transaction volumes have not been affected.
Looking ahead to 2023, there is cause to believe the speed of rate increases is abating. If the US goes into recession next year, we could expect to see some of those rises reversed into the back end of the year.
The UAE has done a great job since the start of the pandemic to position itself as a safe haven for people and capital, and we are now experiencing a renewed period of migration to Dubai, which is likely to fuel the real estate market throughout 2023 and beyond.
Global “push” factors such as lockdowns, rising taxes, cost-of-living crises, natural disasters and the ongoing conflict in Ukraine, have left many international citizens looking for a safe environment for their families and their businesses, and the UAE has worked hard to attract those people with visa and business reforms.
Dubai is set to be the number one destination for ultra-high-net-worth migration in 2022, beating the US, according to a global citizenship company.
With the opening up of China in 2023, we can also expect a renewed inflow of tourists and residents in 2023.
As a result, Dubai’s population surpassed 3.5 million this year and is predicted to grow to 5.9 million by 2040, with approximately 110,000 new residents a year.
Finally, Dubai is a very different proposition from what it was during previous market highs. Our market today is more regulated, diverse and showing signs of maturity.
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The city offers world-class education and health care, long-term visas and higher levels of home ownership among its residents.
Gross domestic product growth this year is forecast to be 7.6 per cent, and the World Bank expects growth of 4.1 per cent in 2023.
Crucially, for the real estate market, there are no “bubble” indicators as we are not seeing prices running away.
In fact, prices on a macro level remain below 2014 levels and while transactions have increased, prices for villas and townhouses especially have stayed relatively steady over the past three quarters.
The luxury market continues to race ahead, but wider price disparity between prime luxury and the rest of the market should be expected in a mature market and is found in every world city.
Prices in Dubai have risen over the past two years, but coming off the back of seven years of price reductions, they remain good value, with average rental yields at a healthy 6.5 per cent.
Dubai is one of the best value global markets for investors, according to the UBS Bubble Index 2022.
The city's real estate market has the momentum and the favourable winds to outperform the rest of the world’s markets for the next 18 months, by which time the West should be back to growth.
Dubai has been a net beneficiary of the pandemic and recent global uncertainties and is attracting new residents and investors like never before, and I expect 2023 will be a continuation of these trends.
Richard Waind is group managing director of Betterhomes