- Latest increase marks 11 consecutive quarters of growth
- Prime prices forecast to increase by 5% in 2024
Residential property values in Dubai have continued their upward trajectory, marking the 11th consecutive quarter of price increases according to Knight Frank’s Autumn 2023 Dubai Residential Market Review.
During the third quarter of 2023, average residential property prices rose by 5%, bringing the cumulative increase to 30% since Q1 2020, although prices remain 7% below the peak of 2014. On an annual basis, prices showed a significant rise of 19%.
Faisal Durrani, Partner – Head of Research, MENA, commented: “As we approach the fourth year of sustained price increases in this third market cycle, Dubai’s prime markets remain highly sought after and are responsible for 4.8% of transactions by total value that have taken place in the first nine months of 2023.
And the ready homes market continues to dominate. Indeed, 51% of transactions between Q1 and Q3 were secondary market sales, reflecting the high proportion of end-users and second-home buyers in the current market cycle”.
Echoing on this sentiment, Nick Candy, CEO of Candy Capital says: “These latest price growth highlights the unwavering confidence in Dubai’s luxury real estate market. The city’s remarkable trajectory, world-class lifestyle, and strategic position as a global city have solidified Dubai’s status as a magnet for the world’s elite. Currently, Dubai real estate remains very cheap compared to other global cities, and I believe that at the top end of the market, there will be substantial price growth over the next five years and beyond.”
With a rise in the volume of product launches over the last 12 to 18 months, and as developers respond to the stable and sustained demand for homes, the quantum of off-plan homes sold has been unsurprisingly rising, Knight Frank says. Off-plan sales for the first nine months of this year totalled AED 100 billion and sales for ready homes equalled AED 104.9 billion.
Examining the market by segment, apartment prices in Dubai projected a rise of 5.1% in Q3 2023, reaching over AED 1,300 per square foot (psf). This signifies a robust 26% increase since Q1 2020, although it is noteworthy that despite a significant 19% increase in the past year, apartment prices remain 10% below the 2014 peak.
In the villa segment, prices in Dubai experienced a 4.5% increase between June and September, culminating in an average price of AED 1,580 psf. This reflects a 18% surge compared to the previous year and a 57% increase since Q1 2020.
Taking a closer look at the best-performing areas, Knight Frank’s analysis concludes that apartments in Dubai South have experienced one of the strongest growth rates, with prices increasing by 73% over the last 12 months. Following closely are Jumeirah Lakes Towers (67%) and Umm Suqeim Third (Madinat Jumeirah Living) (37%), with approximate prices of AED 1,150, AED 1,780, and AED 2,860, respectively.
Moreover, Palm Jumeirah continues to maintain its status as the most expensive apartment submarket, with prices standing at AED 3,390 per square foot. Notably, both The Palm Jumeirah and Umm Suqeim Third submarkets have witnessed their prices surpass Q1 2020 levels by 122% and 100%, respectively.
Jumeirah Islands has experienced a 65% increase in villa prices in just the past year, now standing at AED 2,680 per square foot, establishing itself as the neighbourhood with the most rapid increase in villa values. Additionally, Dubai South’s villas have recorded the most significant quarterly price change, soaring by 33% during Q3.
Knight Frank has also published its annual market outlook for 2024 and has based its prediction on four of the key fundamentals that have influenced house prices in Dubai during this market cycle. These indicators include transaction volumes, the growing preference for ready properties, the high proportion of cash buyers, and supply limitations.
Durrani explained: “12-months after our first prime residential market forecast for Dubai, our 2023 prediction for the city’s prime residential market has been proven accurate. Dubai’s prime market, which encompasses the neighbourhoods of the Palm Jumeirah, Emirates Hills and Jumeirah Bay Island collectively experienced price growth of 15.9% in the 12-months to the end of September 2023, putting us on track to achieve the 13.5% we forecast at this time last year. In 2024, we forecast a 5% increase for prime values, while the mainstream market is expected to grow by 3.5%.
While this may, on the surface at least, appear to be a significant decline on the 44.4% prime price growth registered in 2021, it is simply a reflection of some of the extraordinary growth in 2021 slowly working its way out of our 12-month growth calculations”.
During this market cycle, several factors have significantly influenced price performance, with one aspect being the record number of home sales exceeding US$ 10 million. In the period from Q1 to Q3 of 2023, there were 87,000 homes sold in the emirate, resulting in a total transaction value of AED 224.6 billion. Comparatively, 2022 witnessed 92,000 transactions, with a cumulative value of AED 222.7 billion. It’s important to highlight that monthly activity dipped to 7,500 transactions in September, down from the consistent pace of over 10,000 homes sold per month between January and August.
Off Plan vs. Ready Sales:
Dubai’s freehold residential market was characterised by a dominance of off-plan sales, with 62% of all sales in 2009 and a long-term average of 42%. In Q1-Q3 2023, off-plan sales made up 47.8% of total sales, slightly above the long-term average.
According to Knight Frank’s 2023 Destination Dubai report, 66% of international High Net Worth Individuals (HNWI) seeking a second home in Dubai prefer ready properties. Globally, 53% of HNWI favour completed homes in Dubai, rising to 61% for those with a net worth over US$10 million and reaching 71% among East Asian HNWI.
Cash buyers’ dominance:
Cash buyers continue to dominate the market, constituting around 80% of transactions in Q2 2023. This has helped insulate the market from rising borrowing costs and contributed to record sales in 2023. While cash transactions have been at their highest level on record at 82.4% during H1 2023, there’s a possibility that many buyers will consider refinancing in the future.
The city’s growing population, projected to reach 7.8 million by 2040, will necessitate a significant increase in residential development. This is especially pronounced in the prime markets, where only 368 homes are currently under construction, indicating a potential for higher price appreciation compared to the mainstream market.
In the past, Dubai’s residential property market has been affected by an oversupply, which has hindered capital value growth. However, developers have been measured in addressing the current demand, leading to noteworthy price appreciation. Presently, there are 77,864 homes (excluding branded residences) under construction, scheduled for delivery by the end of 2028, with an annual average of approximately 13,000 homes over the next six years, considerably below historical completion rates.
Durrani concluded: “Our forecasts are not without risk. A global economic slowdown and the knock-on impact on the local economy, combined with the risk of an escalation in regional tensions are medium to high risks, with the latter potentially emerging as a key catalyst for higher oil prices. This in turn could fuel global inflation and higher interest rates, which could drive up borrowing rates further and therefore dampen demand.
“When it comes to an oversupply of homes, this is a lower risk to the market as the market. In our view, the city remains undersupplied, particularly given the population growth projections and the dearth of new homes in prime neighbourhoods as well as in the upper echelons of the price spectrum.”
About Knight Frank:
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, the Knight Frank network has 487 offices across 53 territories and more than 20,000 people The Group advises clients ranging from individual owners and buyers to major developers, investors, and corporate tenants.
In the MENA region, we have strategically positioned offices in key countries such as the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, and Egypt. For the past 13 years, we have been offering integrated residential and commercial real estate services, including transactional support, consultancy, and management.
Understanding the unique intricacies of local markets is at the core of what we do, we blend this understanding with our global resources to provide you with tailored solutions that meet your specific needs. At Knight Frank, excellence, innovation, and a genuine focus on our clients drive everything we do. We are not just consultants; we are trusted partners in property ready to support you on your real estate journey, no matter the scale of your endeavour.