The UAE has once again become a global magnet for investments, businesses and people. Fueled by strong economic growth and effective government strategies, these factors have propelled the real estate market toward remarkable recovery and growth since the pandemic four years ago. The real estate market in 2023 was strong in many ways. These encompass record sales, increased capital growth, surging rents and attractive yields.
Dubai real estate landscape
Surge in residential sales
Residential sales of ready homes in Dubai increased 27 percent in 2023, reaching record numbers. This followed a robust 31 percent annual growth in 2022. In comparison, off-plan sales, which experienced a 22 percent increase last year, had seen a remarkable 100 percent surge the year before. Despite the anticipation of a decline in activity in Dubai’s mortgage market due to rising interest rates, mortgage transaction volume defied expectations and increased by 25 percent annually. Rents also increased annually. There’s a 16 percent rise for apartments and a 9 percent increase for villas. Net yields were slightly compressed in 2023, averaging 6 percent for apartments and 4.9 percent for villas.
Villa market dynamics
Digging deeper into market trends, we found that the extraordinary demand for villas, or larger homes in general, was what initially propelled the market in an exponential upward direction starting shortly after the onset. This period coincided with the lowest prices in the market. Four years later, demand for villas remains strong, albeit not as much as before, primarily due to increased property values potentially nearing price ceilings. Most, if not all, villa communities have doubled in value since the pandemic and surpassed price peaks witnessed 10 years ago.
ValuStrat Price Index insights
The ValuStrat Price Index, or VPI, a valuation-based price index monitoring a representative fixed basket of properties, saw villa capital values increase 25 percent annually and between an astonishing 62 percent and 128 percent since 2020. The top annual performers were villas in the highly desired Jumeirah Islands (32.2 percent), Palm Jumeirah (31.9 percent), Dubai Hills Estate (30.6 percent) and Mudon (27.2 percent).
Villa rentals and price points
Villa rentals rose 9 percent annually; however, we observed insignificant changes during the second half of last year, suggesting possible price ceilings reached within some villa communities. Average annual rents for 3-bed villas stood at AED 310,000, 4 beds at AED 394,000, and 5-bedroom villas at AED 492,000.
Apartment market resurgence
In contrast, most of the apartment market, which constitutes 85 percent of homes in Dubai, began the recovery process only last year and is now very much on a positive momentum, particularly within the middle and low segments of the market. Unlike villas, apartment capital values have not doubled, though they did grow in double digits. The VPI covering Dubai’s apartment capital values accelerated to a record annual increase of 15 percent by the end of 2023. The best apartment performance compared to the same period last year was recorded in Discovery Gardens (26.4 percent), mainly driven by the Route 2020 Metro extension. This is followed by Palm Jumeirah (25.4 percent), The Greens (24.3 percent), Motor City (20.7 percent) and Town Square (19.5 percent).
Apartment rent trends
Apartment rents rose 16 percent annually for new contracts. Existing tenants also received rental increments from their landlords. This is due to updates in Dubai’s RERA (Real Estate Regulatory Agency) rental calculator. Average asking rents per annum for studio apartments were AED 54,000, 1 bed at AED 78,000, 2 beds at AED 115,000, and 3-bedroom apartments averaged AED 176,000 per annum.
Read: How to invest in Dubai real estate in 2024
Abu Dhabi real estate dynamics
Positive trends and market pace
The Abu Dhabi real estate market witnessed equally positive trends but at a different pace than neighboring Dubai. A relatively smaller market in terms of residential stock, supply and demand, sales of ready homes increased 24 percent annually. More impressively, however, off-plan sales jumped 85 percent in 2023 when compared to 2022. Rents during the fourth quarter of 2023 increased 6.4 percent annually – apartments rose by 5.5 percent while villas rose by 7.3 percent. Net rental yields averaged 4.4 percent in Abu Dhabi.
VPI insights for Abu Dhabi
The VPI covering Abu Dhabi’s freehold residential market grew in a more gradual, sustainable manner, improving by 4.2 percent annually. Capital values of apartments rose 2.7 percent. However, villas fared better, with 5.7 percent in annual capital gains. The top annual performers were villas located in Saadiyat Island (12.6 percent), Al Raha (5 percent) and Mohammed Bin Zayed City (4.2 percent). The highest price increases registered for apartments were found in Al Muneera Island (4.5 percent), Saadiyat Island (4.1 percent) and Al Bandar (4 percent).
Depending on location and asset class, the UAE real estate market recovered and grew at different momentums; Dubai’s market surged beyond previous market cycle peaks in a relatively short period, while Abu Dhabi’s property market showed further maturity and is experiencing steady growth.
Future outlook for 2024
Looking forward to 2024, Dubai’s real estate market is expected to remain strong. However, growth rates are slower than last year. Dubai’s real estate cycle is likely heading toward a new phase, foreseeing a resurging apartment market versus more tempered growth in the villa market. Abu Dhabi can expect modest price increases in freehold villa communities and stable apartment prices. And with the expectation of lower mortgage rates this year, this could potentially lead to a boost in mortgage transactions and reduced off-plan sales.
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