UAE Property Market Surge: A Comprehensive Analysis

The UAE´s property market continues to grow strongly, supported by robust demand, healthy economic growth, and strong foreign interest

The UAE's property market continues its remarkable ascent, fueled by robust demand, sustained economic growth, and a strong influx of foreign investments. The sector's performance in Q1 2024 has been exemplary, showcasing significant growth across various metrics.

Residential Sector Performance in Q1 2024

The residential sector in the UAE has demonstrated impressive growth in the first quarter of 2024. JLL MENA's Q1 2024 UAE Real Estate Market Overview report highlights the substantial increases in both sale prices and rental rates across Dubai and Abu Dhabi.

• Dubai: The city saw residential sale prices and rentals soar by approximately 21% year-on-year. This consistent growth reflects Dubai's appeal as a global real estate hotspot.

• Abu Dhabi: The capital experienced a 7% increase in sales prices and a 4% rise in rental rates, indicating a healthy but more subdued market compared to Dubai.

Price Indices and Trends

According to Reidin.com, Dubai's all-residential property price index (RPPI) surged by 20.71% year-on-year (16.81% inflation-adjusted) in Q1 2024, marking its best performance since Q3 2024. This follows substantial annual increases over the past few years:

• 20.14% in 2023

• 9.53% in 2022

• 9.25% in 2021

In contrast, the market faced declines in previous years:

• 7.12% in 2020

• 6% in 2019

• 8.56% in 2018

On a quarterly basis, Dubai's residential property prices increased by 6.12% (5.57% inflation-adjusted) in Q1 2024.

Detailed Property Type Analysis

• Apartments: Prices in Dubai surged by 20.43% (16.54% inflation-adjusted) year-on-year, accelerating from the previous year's 12.4% growth. Quarter-on-quarter, apartment prices were up by 6.2% (5.66% inflation-adjusted).

• Villas: Villa prices in Dubai saw a sharp increase of 22.08% (18.14% inflation-adjusted) year-on-year, following a 14.82% growth in the previous year. Quarterly growth stood at 5.35% (4.8% inflation-adjusted).

The average purchase prices by the end of 2023 were:

• Apartments: AED 1,500,000 (US$408,386)

• Villas: AED 3,200,000 (US$871,222)

In Abu Dhabi, the all-residential property price index rose by 7.53% (4.05% inflation-adjusted) year-on-year in Q1 2024, with a modest quarterly increase of 2.45% (1.92% inflation-adjusted).

• Apartments: Prices increased by 6.42% (2.98% inflation-adjusted) year-on-year, with a quarterly rise of 2.37% (1.84% inflation-adjusted).

• Villas: Prices rose by 12.97% (9.32% inflation-adjusted) year-on-year, with a quarterly increase of 2.81% (2.28% inflation-adjusted).

Rising Demand and Record Transactions

The demand for properties in the UAE remains strong, with record-breaking sales transactions in both Dubai and Abu Dhabi in 2023.

• Dubai: Registered sales transactions hit a record 133,134 deals in 2023, up by 38% from the previous year. The total value of these transactions reached AED 571.3 billion (US$155.54 billion), representing a 45.8% year-on-year increase.

• Abu Dhabi: Transactions reached a record high of 13,298 units in 2023, marking a 75% increase from the previous year, with the total transaction value surging by 120% to AED 44 billion (US$11.98 billion).

The trend continued into 2024. In Q1 2024, Dubai saw a 16% growth in transaction value and a 20% increase in volume compared to the same period last year. Abu Dhabi experienced a slight 1% decrease in transaction value but a 17% rise in volume.

Economic Drivers and Foreign Interest

The UAE's stable economy, robust financial fundamentals, and continuous pursuit of new growth opportunities make it a prime destination for global investors. Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai, emphasized the confidence global investors have in Dubai's economy, citing its exceptional infrastructure and supportive regulations.

In 2023, the UAE economy grew by approximately 3.1%, driven by robust domestic consumption. The International Monetary Fund (IMF) projects a 4% growth for the UAE economy in 2024, with the UAE central bank slightly more optimistic at 4.2%.

Housing Market Cycle: A Historical Perspective

Dubai's property market has seen dramatic fluctuations over the past two decades. From 2002 to 2008, property prices nearly quadrupled, driven by a surge of foreign investment and ambitious mega-projects like Jumeirah Garden City, Dubailand, and Palm Jumeirah. However, the global financial crisis in 2008 led to a significant downturn, halting many projects.

As the economy recovered, so did the property market. Between 2012 and 2014, Dubai experienced rapid house price growth, averaging 21.5% annually. However, the market slowed again by the end of 2014 and remained depressed until 2021.

From 2015 to 2020, Dubai's RPPI saw annual declines, influenced by an excess supply of apartments, the Federal Mortgage Cap, the implementation of a 5% value-added tax (VAT), and the adverse impact of the Covid-19 pandemic. The market began to recover in 2021, with Dubai house prices rising by 9.25% and continuing to grow in subsequent years.

Current Market Dynamics: Dubai Property Transactions

Dubai continues to attract significant property transactions, reaching 133,134 deals in 2023. The total value of these transactions was AED 571.3 billion (US$155.54 billion), a substantial increase from the previous year. Key areas with high transaction volumes included Dubai Marina, Palm Jumeirah, Jebel Ali Industrial First, and Wadi Al Safa 3.

Abu Dhabi Property Demand

Abu Dhabi also saw a significant increase in property transactions, with 13,298 units sold in 2023. The total transaction value rose to AED 44 billion (US$11.98 billion). The demand for high-quality off-plan developments remains strong, particularly among foreign investors from countries like Russia and China.

New Expat-Friendly Policies

The UAE has introduced several initiatives to attract foreign investors and residents. The Golden Visa system, launched in 2019, offers long-term residency for foreign investors, professionals, and outstanding students. These visas allow expats to live, work, and study in the UAE without needing a national sponsor and enjoy 100% ownership of their businesses.

Eligibility criteria for the Golden Visa include significant investments in public or real estate assets and specialized talents. The UAE government has also liberalised foreign ownership laws, particularly in Dubai and Abu Dhabi, allowing foreigners to buy freehold properties in designated areas.

Housing Supply Trends

The UAE continues to see a rise in housing supply. In Dubai, about 39,000 new residential units were completed in 2023, with another 35,000 units expected in 2024. In Abu Dhabi, around 5,000 units were added in 2023, with 8,000 more anticipated in 2024. This steady increase in supply aims to meet the growing demand driven by domestic and international buyers.

Rental Yields and Trends

Rental yields in Dubai and Abu Dhabi remain attractive. In April 2024, gross rental yields in Dubai averaged 7.24%, with apartments yielding 7.66% and villas 5.59%. In Abu Dhabi, the average rental yield was 6.46%, with apartments yielding 6.82% and villas 5.31%. These figures highlight the lucrative nature of property investments in the UAE.

Surging Rents in Dubai

Dubai has seen a significant increase in rental rates, with all residential units up by 20.75% year-on-year in April 2024. Apartment rents rose by 21.79%, while villa rents increased by 13.12%. The strong rental demand is driven by renewed contracts, which saw a 9% increase in Q4 2023 compared to the previous quarter.

Moderate Rent Increases in Abu Dhabi

In Abu Dhabi, rental rates grew by 8.49% year-on-year in April 2024. Apartment rents increased by 9.24%, while villa rents rose by 4.84%. The increase in rents is attributed to the strong demand for high-quality residential properties. The UAE's property market continues to thrive, supported by strong demand, robust economic growth, and significant foreign interest. With favourable policies for expats, a steady increase in housing supply, and attractive rental yields, the market is poised for continued growth. Dubai and Abu Dhabi remain top destinations for property investments, offering a dynamic and resilient real estate market that caters to both domestic and international buyers.

However, landlords can increase rents only at the time of renewal of the lease. The DLD requires landlords to provide tenants with at least 90-day notice before the rent increase.

Recently, a new draft law was proposed that will freeze rents in Dubai for three years, but it has never come to fruition.

In Abu Dhabi, the 5% annual rent cap remains in force, which was reinstated in December 2016 after it had been abolished in 2013. Further in October 2018, the Abu Dhabi Judicial Department issued new rules that will make it easier for landlords to evict tenants. The new rules allow landlords with lease contracts registered with Abu Dhabi Municipality to approach the Enforcement Department directly to claim outstanding rent and repossess their property. Previously, landlords had to go through a legal process to evict a tenant, which typically takes up to 6 months.

Abu Dhabi has also strengthened the protection of off-plan buyers. Its recent real estate law (No. 3 of 2015) appoints Abu Dhabi´s Department of Municipal Affairs (DMA) as the real estate regulator, performing the same functions as Dubai´s RERA. The reforms, as outlined by The National, include:

• A central government database/register for all property projects in Abu Dhabi, including off-plan sales;

• Developers are only allowed to charge DMA-approved administrative fees, and are barred from collecting registration fees from investors;

• Rules are laid down for the creation of owners´ associations;

• Developers are only allowed to sell off-plan units if they own real estate right over the project land. A "disclosure statement" is also required, providing information on the development to home buyers.

• Developers marketing off-plan units are required to open an escrow account.

• In case of "substantial prejudice", off-plan buyers can terminate their purchase.

• Developers will be fined by the DMA if their projects are delayed by more than six months. If there is a significant delay, the new law allows for the cancellation of projects or the appointment of a new developer.

• A 10-year liability period for developers regarding structural building defects

The key interest rate kept at 5.40%

In May 2024, the Central Bank of the UAE kept its key overnight deposit facility unchanged at 5.40%, following the US Fed´s decision to keep the interest on reserve balances unchanged. The move followed six consecutive rate hikes in the past nineteen months.

The UAE´s base rate for overnight deposits is linked to the US Fed´s interest on excess reserves (IOER).

Mortgage interest rates in Dubai have, in the past, followed key US Fed rates, because the dirham (AED) is pegged to the US dollar at AED3.67 = US$1. Some banks offer mortgage loans to both nationals and expatriates.

However, due to the continuous increase in key interest rates to tame inflation, mortgage owners with variable rates in the emirates have seen their mortgage interest rates surge from 2% to 3% annually to 6% to 9%. Some homeowners are even paying more than 10% mortgage rates.

The mortgage market continues to strengthen

Despite a surge in interest rates, the mortgage market continues to expand strongly. During 2023, mortgage transactions in Dubai hit AED 121 billion (US$32.94 billion) through 33,280 real estate dealings.

This is because cash buyers account for the majority of transactions in Dubai, making the market less sensitive to mortgage interest rate changes. For instance, in Q3 2023, mortgage transactions accounted for 8,238 deals, while cash deals accounted for 16,485 deals (except off-plan sales) in the emirate, according to ValuStrat.

In contrast, Abu Dhabi depicts a different scenario, where mortgage transactions are more dominant than cash deals. In Q3 2023, there were 1,247 mortgage transactions in the emirate, as compared to 890 cash transactions (excluding off-plan sales).

Mortgage rules were introduced in October 2013 to regulate the market are provided in the table herein.

In March 2020, LTV ratios on mortgages for first-time homebuyers, both for nationals and expatriates, were raised by 5%, to alleviate the economic conditions caused by the Covid-19 pandemic. It remained at that level since.

More fixed-rate mortgage products have been introduced in the last decade, and "Fee-free" products have allowed borrowers to switch to a new lender at a lower cost since the last quarter of 2010.

Crude oil prices remain volatile

Brent oil prices reached a decade-high of US$120.08 per barrel in June 2022, amidst the ongoing Russian invasion of Ukraine. However, the international oil market was adversely impacted by the growing rift between Saudi Arabia and UAE last year.

With increasing oil prices in 2021, UAE pushed for increased oil production within the OPEC+, so that it can invest in its diversification plan before oil demand dries up. The country is upset about the low baseline from which its production is calculated. Abu Dhabi has invested billions of dollars in recent years to increase its production capacity.

However, Saudi Arabia, OPEC´s de facto leader, has refused the said concession, causing a rare public clash between the two allies. Neither side appears ready to budge, clouding the outlook for oil prices. In fact, in March 2023, the UAE is reportedly contemplating leaving the powerful cartel.

But in August 2023, OPEC and its allies agreed to gradually increase oil supplies to the market in 2024, ending the spat between the two oil powerhouses.

In April 2024, Brent oil prices increased by 7.1% to an average of US$90.05 per barrel as compared to US$84.11 per barrel in the same period last year. However, it remains 25% below the recent peak price level of US$120.08 seen in June 2022, according to figures released by the World Bank.

UAE economy gathering pace

The UAE economy grew by around 3.1% in 2023 from a year earlier, mainly driven by robust domestic consumption, according to the central bank. This followed strong expansion of 7.9% in 2022 and 4.4% in 2021 and a pandemic-induced contraction of 5% in 2020.

"The economy continues to grow, benefitting from strong domestic activity," said Mr. Ali Al-Eyd of the IMF. According to the IMF, non-hydrocarbon GDP was estimated to have expanded by more than 4% in 2023, driven by tourism, construction, and real estate developments. Moreover, social and business-friendly reforms, as well as the country´s safe haven status continue to attract foreign inflows of capital and labor, resulting to a strong growth in real estate prices, especially in the high-end market.

Economic growth will strengthen this year, with the expected rise in oil production. The IMF projects the UAE economy to grow by 4% in 2024 while the UAE central bank is a bit more optimistic, expecting a real GDP growth rate of 4.2% this year. Growth will increase further to 5.2% in 2025, according to the central bank.

Abu Dhabi remains very dependent on oil revenues while Dubai is more focused on trade, travel, and tourism.

Inflation stood at 3.36% in February 2024, down from 3.6% in the previous month and 4.32% in the same period last year, according to the National Bureau of Statistics. Nationwide inflation averaged just 1.1% in 2011-2021 before rising to 4.8% in 2022 and to 3.1% in 2023, based on IMF figures.