Shailesh Dash

UAE luxury real estate residential market outlook remains bullish

Sunset in the mountains

The UAE has established itself as a hub for investors, entrepreneurs and is home to some of the world’s wealthiest people and an increasing number of expatriates. The country’s tax-efficient environment, global connectivity and ease of setting up a business has made it a prime destination to park wealth.

With the country’s GDP on the rise, income generated is distributed among the population, increasing the average per capita income. This increase has translated into a higher standard of living for residents, offering them greater financial resources and purchasing power. The improved economic conditions and higher per capita income in the UAE has acted as significant driver for high-net-worth individuals (HNWIs) seeking attractive investment opportunities and a luxurious lifestyle in the country.

Moreover, factors such as its safe haven status, highly diversified economy, well-established healthcare system, luxury shopping and restaurants on offer, prime residential property market, reputed international schools and all-year round leisure activities have aided the influx of wealthy individuals in setting up their homes, on UAE shores.

The government has also pushed towards establishing itself as a hub for wealthy and potential investors. It has opened up several economic sectors to 100 per cent foreign investment. It has also begun a ‘UAE Residence by Investment’ program, under which qualified individuals are given a 10-year renewable residence permit to retain talent and draw even more wealthy foreign investors. The UAE has recently implemented long-term visas and reduced certain job visas and social norms to improve its international image and attract those who wish to live, work and invest there. In 2022, the UAE attracted more than 5,200 HNWIs, the highest globally.

Following the Covid-19 pandemic, Dubai became the preferred resort for the world’s wealthy, hosting approximately 68,400 millionaires. According to Henley & Partners’ ‘Private Wealth Migration Report 2023’, more than 4,500 millionaires are expected to relocate to the UAE this year.

Most of the HNWIs will relocate to the UAE from India, followed by the UK, Russia, Lebanon, Pakistan and other Asian and African countries. The UAE is home to around 109,900 millionaires with $1 million-plus wealth, 298 centi-millionaires with $100 million-plus assets and 20 billionaires.

The influx of HNWIs in the UAE has stimulated demand for the already thriving real estate market, especially for luxurious properties in Dubai that offer exclusive amenities. These discerning investors seek upscale residential properties, including high-rise penthouses, luxury villas, and waterfront mansions, among others.

The UAE’s real estate market has responded to this rise in demand by providing a wide array of prestigious projects with developers focusing on state-of-the-art infrastructure, often incorporating exclusive services and features such as private beach access, yacht berths, and personalized concierge services to cater to the expectations and preferences of HNWIs. Notably, Dubai has been ranked as the world’s fourth-most active market in the luxury residential segment as sales of prime properties continue to rise.

According to Knight Frank, Dubai witnessed a total of 92 deals worth $1.7 billion in first quarter of 2023 for homes valued at $10 million or more. By comparison, Hong Kong had 67 transactions valued at $988 million, while New York raised $942 million in 58 deals, and London completed 36 sales worth $736 million.

HNWIs plan to spend $2.5 billion on Dubai property this year, with around 22 per cent prepared to commit $5 million to $10 million on real estate in the Emirate and eight per cent ready to spend more than $80 million. The report also states that East Asian buyers have a higher spending propensity, with many prepared to allocate more than $20 million to buy property in Dubai.

In 2022, approximately $3.8 billion was spent on homes in Dubai, priced at more than $10 million. Expanding their property portfolio, especially in high-end villas and apartments, has emerged as the primary reason to invest in Dubai for those with a net worth of more than $10 million. There is also a shift in preference from off-plan purchases to recently built or completed homes.

The UAE real estate market has continued to recover from the pandemic due to government initiatives, higher oil prices and other measures to support the economy. In first quarter of 2023, the average prices for homes above $10 million reached approximately $1,970 per sqft, translating to a 16 per cent y-o-y increase from $1,700 per sqft in 2022.

Dubai residential prices jumped 13 per cent annually in first quarter of 2023, driven by strong demand for ready-built homes in the luxury segment. On a quarterly basis, prices rose 5.6 per cent, marking the ninth consecutive quarterly growth. Villa prices surged 15 per cent y-o-y basis to reach $395.8 per sqft, while apartment prices rose 12 per cent y-o-y basis to $334.9 per sqft. Quarterly, villa and apartment prices increased by 5.1 per cent and 5.7 per cent, respectively.

Nevertheless, buying luxury properties in Dubai is still cheaper to buy, with rental and investment yields higher than in other major cities such as London or Hong Kong. Consequently, property transactions in Dubai and Abu Dhabi have surged amid higher buyer demand. In Dubai, Downtown Dubai and The Palm Jumeirah were noted as the most preferred areas for HNWIs looking to buy property in the Emirate.

Consequently, several top operators such as Emaar, Nakheel, Meraas, Dubai Properties, Sobha Realty, Omniyat, ALEC, Aldar, Deyaar, Damac, Mag, and The First Group, among others, have launched high-end properties with a strong pipeline of projects that specifically cater to HNWI needs. Among the major players, Omniyat has made significant strides and established itself as a builder offering residential, business, hotel, and retail spaces for a one-of-a-kind premium experience. The company has sold four of the most expensive penthouses in the region, worth more than $70.8 million — located at the company’s ONE and AVA at Palm Jumeirah, Dorchester Collection development.

Omniyat sold the first penthouse in 2017 for a record price of $27.8 million — at the time, the most expensive apartment sold in Dubai. The second and third most expensive penthouses were sold in Dubai for around $23.1 million in 2021 and $19.9 million in 2019. In 2023, Sotheby’s International Realty sold the most expensive penthouse ever in Palm Jumeirah for approximately $59.9 million. The transaction was for a penthouse at Omniyat’s AVA at Palm Jumeirah, Dorchester Collection.

The luxury home boom has rippled through the wider property market, increasing apartment and villa prices. As such, Dubai’s luxury real estate residential market is projected to record 13.5 per cent growth in 2023, the highest growth rate for any prime market globally.

The luxury residential property segment in Dubai is expected to continue to rise as prices are likely to sustain an upward trend, albeit at a slower pace, due to rising demand from HNWIs, tight supply and fewer launches of new ultra-high luxury developments. Going forward, the government will likely encourage more project launches to keep Dubai’s supply of high-end properties more sustainable. A demand-supply imbalance could lead to rents shooting up further, which could further elevate existing constraints and make sustainability a challenge.

Nevertheless, the outlook for this niche market remains bullish and offers several opportunities for investors and developers as the UAE economy continues to outpace its global peers.