The UAE is once again a global magnet for investment, business and talent. Fueled by strong economic growth and effective government strategies, these factors have propelled the real estate market towards impressive recovery and growth since the pandemic four years ago. The real estate market in 2023 was strong on many fronts. These include record sales, capital growth, rising rents and attractive yields.
dubai real estate landscape
Rapid increase in home sales
Dubai's ready-built home sales rose by 27% in 2023, reaching a record number. This was followed by strong annual growth of 31% in 2022. By comparison, unplanned sales rose 22% last year, compared to an astonishing 100% jump the year before. Despite expectations that rising interest rates would reduce activity in Dubai's mortgage market, mortgage transaction volumes unexpectedly rose by 25% for the year. The rent was also rising year by year. Apartments increased by 16% and villas by 9%. Net yields compressed slightly in 2023, averaging 6% for apartments and 4.9% for villas.
Vacation home market trends
Digging deeper into market trends, we found that the extraordinary demand for vacation homes, or larger homes in general, was what initially propelled the market into an exponential upward direction right from its inception. This period coincided with the lowest price on the market. Four years later, demand for villas is still strong, although not as strong as before, mainly due to rising property values that could push prices closer to the upper end. The value of most, if not all, vacation home communities has doubled since the pandemic, surpassing the price peak of a decade ago.
ValuStrat Price Index Insights
of ValuStrat Price IndexIn the VPI, a valuation-based price index that monitors a representative fixed basket, villa capital values have increased by 25 percent annually, with an astonishing 62 percent to 128 percent increase since 2020. The year's top performer was the highly sought-after villa in Jumeirah Islands. (32.2 per cent), Palm Jumeirah (31.9 per cent), Dubai Hills Estate (30.6 per cent) and Mudon (27.2 per cent).
Villa rental and prices
Vacation home rentals increased by 9% annually. However, a slight change was observed in the second half of last year, suggesting that prices may reach a ceiling within some vacation home communities. The average annual rent for a three-bed villa was AED 310,000, for a four-bed villa AED 394,000 and for a five-bedroom villa AED 492,000.
Revival of the condominium market
In contrast, most of the apartment market, which accounts for 85% of Dubai's housing stock, only started the recovery process last year and is currently enjoying very good momentum, especially in the mid- and low-end segments of the market. Unlike vacation homes, apartments have not doubled in capital value, although they are in double digits. Dubai's VPI, which covers apartment capital values, accelerated to a record annual increase of 15 percent by the end of 2023. The highest apartment performance compared to the same period last year was recorded in Discovery Gardens (26.4 percent), mainly driven by Route 2020 Metro. expansion. This is followed by Palm Jumeirah (25.4%), The Greens (24.3%), Motor City (20.7%) and Town Square (19.5%).
Condominium rent trends
Apartment rents increased by 16% per year with new contracts. Existing tenants also received rent increases from their landlords. This is due to an update to his RERA (Real Estate Regulatory Authority) rent calculator in Dubai. The average asking annual rent for a studio apartment was AED 54,000, one bed was AED 78,000, two beds was AED 115,000, and the average annual rent for a three-bedroom apartment was AED 176,000.
Read: How to invest in Dubai real estate in 2024
Abu Dhabi real estate trends
Positive trends and market pace
Abu Dhabi's real estate market similarly showed positive trends, but at a different pace than neighboring Dubai. Sales of ready-made homes, a relatively small market in terms of housing inventory, supply and demand, increased 24% for the year. But what's more impressive is that his unplanned sales increased by 85% in 2023 compared to 2022. Rent in the fourth quarter of 2023 increased by 6.4% annually, apartments by his 5.5% and villas by his 7.3%. Net rental yields in Abu Dhabi averaged 4.4%.
VPI Insights on Abu Dhabi
VPI, which covers Abu Dhabi's freehold housing market, grew in a more gradual and sustainable manner, improving by 4.2% for the year. Apartment property values rose by 2.7%. However, the vacation home performed better, with annual capital gains of his 5.7%. The top performers for the year were villas on Saadiyat Island (12.6%), Al Raha (5%) and Mohammed bin Zayed City (4.2%). The highest increases in apartment prices were on Al Munira Island (4.5%), Saadiyat Island (4.1%) and Al Bandar Island (4%).
Depending on location and asset class, the UAE real estate market recovered and grew with different momentum. While Dubai's market has grown rapidly in a relatively short period of time, surpassing the peaks of previous market cycles, Abu Dhabi's real estate market has shown further maturity and is experiencing steady growth.
Future outlook for 2024
Looking ahead to 2024, Dubai's real estate market is expected to remain strong. However, the growth rate is slower than last year. Dubai's real estate cycle is likely heading into a new phase, with a recovery in the apartment market and subdued growth in the villa market expected. In Abu Dhabi, apartment prices are expected to remain stable, with some price increases expected in freehold holiday home communities. Also, mortgage interest rates are expected to fall this year, which could lead to an increase in mortgage transactions and a decrease in unplanned sales.
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