Dubai Real Estate: Strong Q2, but growth moderates

The number of real estate transactions in Dubai rose again in Q2 2023, but there are signs that the pace of the growth is slowing. According to the latest figures from Dubai Land Department, the total number of transactions grew 35% y/y to 30,264 transactions but this was a decline of 2.1% from Q1 2023. The q/q decline in the total number of transactions was driven by the drop in off-plan villas transactions which were down by 34% q/q to 2739 transactions.

Apartments had the biggest share of transactions at 23,224 for a total value of AED 47.5bn. Villas saw 4808 transactions for AED 20.9bn, plots had 1287 transactions for AED 21.2bn and commercial property had 925 transactions for AED 1.6bn.

Total number of transactions 

Source: Dubai Land Department, Emirates NBD Research

The total sales value also grew, up 54% y/y to AED 91.2bn in Q2 2023. However, the growth rate was slower on a quarter-on-quarter basis, up only 2.8% q/q.

Investors continued to prefer off-plan properties over ready properties, amid the high interest rate environment. Off-plan sales made 56% of the total number of residential transactions and 59% of the total sales value excluding plots transactions. 

The Dubai real estate market remained a prominently cash purchases market. According to the data from Dubai Land Department, cash purchases made up 81% of total residential sales in Q2 2023. However, the share of cash purchases in the freehold areas is likely to be lower than this. According to a report from Better Homes, cash buyers made up 59% of their total sales in Q2 2023.

Dubai Marina the hottest area in Dubai

Dubai Marina was the top performing area in both volume and value in Q2 2023. It saw 3,187 transactions that generated AED 12.1bn in sales value. Business Bay came in second in terms of value with AED 3.3bn accumulated from 1,794 transactions. Dubai Hills Estates came in third in terms of value with AED 2.6bn from 1,359 transactions. Jumeirah Village Circle came fourth with AED 2.5bn from 3,074 transactions. Al Thanyah Fifth came fifth with AED 1.97bn from 1,498 transactions.

Residential real estate prices continuted to rise

For existing freehold properties, data from ASTECO show that Dubai freehold residential real estate prices continued to make gains but at a slower pace. Prices rose q/q in Q2 but at a slowest rate since Q4 2020.

Quarterly price growth has slowed 

Source: ASTECO, Emirates NBD Research

On an annual basis too, the pace of price appreciation has slowed. Freehold villa sales prices grew by 17.1% y/y, down from 20.5% y/y in Q1 of 2023, the slowest growth rate since Q1 2021. Freehold apartment sales prices have also continued to grow but at a slower pace, rising 15.8% y/y, the smallest y/y gain since Q2 2021.

Dubai freehold residential sales

Source: ASTECO, Emirates NBD Research

Rents have continued to rise but also at a slightly slower rate in Dubai freehold areas. The average growth in villa rents eased to 23.5% y/y from 25% y/y in Q1 of 2023. The average growth in apartments rents have also slowed slightly to 17.4% y/y from 19.9% y/y in Q1 of 2023.

Dubai freehold residential rents

Source: ASTECO, Emirates NBD Research

The average growth in rents continues to moderate across all apartment segments.

Apartment rent growth by size of unit 

Source: ASTECO, Emirates NBD Research

After consecutive quarters of rapid expansion growth in Dubai’s real estate market, the data suggests that the market is starting to stabilize. The contraction in the total number of transactions q/q coupled with the deceleration of annual growth across all segments of the residential freehold market in both rents and sales suggests that the growth will continue to moderate, as we expected given the sharp rise in borrowing costs over the last 18 months. While we think the Fed has likely reached the end of its tightening cycle, we expect rates to remain at current levels until well into 2024. Investors are therefore unlikely to be relieved from the burden of the high interest rate anytime soon. Consequently, we expect both price and transaction volume growth to continue to moderate in the coming months.