Prime residential market in Dubai set for world’s strongest growth in 2023: Report

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Prime residential prices in Dubai - including Palm Jumeirah, Emirates Hills and Jumeirah Bay Island - are set to experience the strongest price growth globally, according to a new property report.

In Knight Frank’s 2023 Prime Predictions – Dubai Edition report, Faisal Durrani, head of Middle East Research, says despite a flood of new luxury properties being built across the emirate, demand still outweighs supply.

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“Dubai’s prime residential market has and continues to be a global outlier, with record price growth in 2022, albeit this has been from a low base,” he said. “Prime values are being fueled by Dubai’s safe-haven status, an exceptionally diverse range of international ultra-high-net-worth individuals in search of luxury second homes, combined of course with the government’s world-leading response to the pandemic, which has spurred business confidence.”

“Adding to the city’s appeal is its relative ‘affordability’, with prime homes transacting for around US$800 per square foot, making Dubai one of the most ‘affordable’ luxury residential markets in the world. Overall residential prices trail 2014 peak levels by 21.4 percent.”

Dubai’s perennial challenge has been its ‘build-it-and-they-will-come’ mantra, which has resulted in more homes being built than the market is capable of absorbing.

In this cycle however, Knight Frank says the number of new high-end homes planned is failing to keep pace with demand.

Bulgari Lighthouse on Jumeirah Bay Island (31 apartments) and Alpago’s Palm Flower on the Palm Jumeirah (11 apartments) account for the bulk of new high-end homes coming to the city’s prime neighborhoods.

Outlook for 2023

Knight Frank says Dubai’s mainstream residential market is expected to register price increases of 5-7 percent by the end of 2022 and a similar rate of growth is expected in 2023.

Durrani said: “For prime Dubai, prices are likely to end the year around 50 percent higher than 2021.”

“Supply is the other critical factor in our 2023 outlook…developers have not responded to the buoyancy in demand as we have seen in past cycles and with supply remaining limited and demand for luxury waterfront continuing to strengthen, our 2023 prime residential forecast of 13.5 percent is supported by a clear demand-supply imbalance as well as a positive economic backdrop.”

“Indeed, the UAE is expected to have one of the world’s fastest growing economies in the world in 2022. A return to steady and sustainable growth will instill confidence in homeowners and investors alike.”

“Our outlook is not without its risks. Dubai is a world city and as such is to an extent vulnerable to global macroeconomic conditions. With increasing global economic uncertainty, Dubai is once again emerging as a safe haven destination, just as it did during the height of the COVID-19 pandemic”.

Across the 25 cities tracked, Knight Frank’s global research network now expects prime residential prices to rise by 2 percent on average in 2023, down from 2.7 percent predicted six months ago.

Despite this slowdown, aggregate growth in 2023 would still be higher than that recorded in six of the last ten years.

Knight Frank says after two years in which the pandemic fuelled a surge in house prices in most global cities, the landscape is now shifting.

Money is becoming more expensive, geopolitics more complex and China is no longer powering the world’s economy. Homeowners are having to grapple with the unpredictability of soaring inflation, the rising cost of debt and higher taxes. Although prime markets are more insulated to the fallout from higher mortgage costs, they’re not immune.

The transition from a sellers to a buyer’s market is already underway across many prime residential markets. But prime residential prices would need to dip by 30-40 percent in some cities for prices to return to their pre-pandemic levels of 2019, according to Knight Frank’s analysis.

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