Dubai Real Estate - Q4 2022

Dubai’s real estate sector grew at the fastest pace all year in Q4 of 2022. The latest figures from the Dubai Land Department show a q/q increase of 14.7% in the total number of transactions from 25,468 to 29,212 and a q/q increase of 18.3% in the value of those transactions from AED 69.42bn to AED 82.11bn.

A significant uptick in the purchase of off-plan properties was the main driving force in the second half of the year with the total number reaching 14,764 in Q4 (up 25.6% q/q), surpassing the total number of existing property purchases (14,448, up 5.3% q/q) for the first time since 2019.

The strong finish to the year for Dubai’s real estate industry exceeded our expectations, given the extent of rate hikes over the course of 2022. In the end, 2022 proved to be a landmark year for the property market as record numbers were achieved not seen since 2009. A total of 97,448 transactions were registered (up 61.5% y/y), reaching a value of AED 265.51bn (up78.1% y/y).

Rising interest rates and a strong USD have done little to deter the underlying demand for real estate so far, but these factors have gone some way in influencing the type of property purchasers invest in. Existing property sales made up the largest chunk of transactions in Q1 and Q2 of last year, seeing q/q growth of 19.2% and 12.7% respectively but that growth then slowed to 2.1% and 5.3% respectively in Q3 and Q4. By comparison off-plan sales saw q/q growth of 9.2% and 5.1% in the first two quarters, before jumping to 31.6% and 25.6% in the final two. 

With developers offering payment plans, off-plan sales may have become relatively more affordable as mortgage rates on existing property purchases rose in H2 2022, as the Fed raised interest rates aggressively from July. Affordability also likely led to increased demand for apartments and townhouses over villas in 2022.

Existing and off-plan property sales

Source: Dubai Land Department, Emirates NBD Research

Property price growth has been slowing as well. Villa price gains slowed to 21.6% y/y whilst apartment prices slowed to 18% y/y in Q4 of 2022, a trend of moderating gains that has been in place since Q1 2022. This slowdown has been fairly modest relative to the gains seen since 2020, but the trend is clear.

Change in villa and apartment sales price y/y

Source: ASTECO, Emirates NBD Research

The average growth in rent prices on a y/y basis for apartments dipped in Q4. The price of three-bedroom apartments normalized after spiking in Q3, down from 39.8% to 19.1% in Q4, bringing the aggregate rent growth for all apartments down from 22.6% to 20.1% y/y. Villa rents have continued to rise sharply, up 23.2% y/y in Q4.

Change in villa and apartment rent price y/y

Source: ASTECO, Emirates NBD Research

Change in apartment rental rates y/y

Source: ASTECO, Emirates NBD Research

Rent for commercial properties has increased significantly in Q4 of 2022, up 18.8% y/y and 6.8% q/q, the highest annual growth rate for over five years. The average sales price of freehold office space is at its highest point since 2018, despite slowing on both a y/y and q/q basis (from 21.6% to 19.0% and 6.6% to 3.5% respectively).  

Change in commercial property rent and sales price y/y

Source: ASTECO, Emirates NBD Research

There is little sign of slowing momentum in Dubai’s real estate market in Q4 2022 despite a 425bp rise in official rates since July 2022. China’s reopening may lead to an increase in demand from that quarter in 2023 which could help to underpin overall demand for real estate. Nevertheless, with the Fed set to continue raising rates, we expect affordability to remain a constraint on demand growth this year. The surge in off-plan sales over the last year will start to result in increased supply of units although probably not until 2024. Overall, we expect the growth in residential real estate prices to continue to slow to more sustainable levels over the course of this year.