Rents in Dubai Expected to Fall After 18 Months

The property market in Dubai is poised for stability over the next 18 months, with potential declines expected afterward. This projection comes from analysts at S&P Global, who attribute the anticipated changes to an increase in supply due to numerous new project launches post-pandemic.

Current Market Conditions

According to S&P Global, Dubai's property market has shown resilience, with no significant impact from regional geopolitical conflicts. This stability is supported by robust demand from both local and international investors, along with several visa reforms that enhance market security. The rental growth is expected to stabilize as the supply of available units increases, especially in non-prime areas by 2025.

Key Insights

Sapna Jagtiani, a primary credit analyst at S&P Global, explains, “Property prices will remain stable over the next 18 months and could decline afterward due to increasing supply. A potential increase in supply could saturate the unfulfilled demand, leading to lower prices and rents.”

Analysts project that around 182,000 new residential units will hit the market between 2025 and 2026, a stark rise compared to the average of 40,000 units delivered annually from 2019 to 2023. This influx of properties is anticipated as many were presold in 2022 and 2023, now ready for delivery.

Factors Influencing Price Trends

Despite the ongoing growth in rents and property prices across most areas in Dubai, the overall absorption rate of real estate inventory depends significantly on the city's population growth, projected at around 3.5% during 2025-2026. Jagtiani notes that while 2024’s property deliveries have not matched the pace of 2023, any significant delays in construction could tighten the market further, supporting upward price trends in the short term. However, a balance is expected in the residential market by 2026 at the latest.

Comparison with Global Markets

As Dubai's population is expected to reach 4 million by 2026, S&P Global suggests that real estate returns in Dubai outperform those in many European countries. This has resulted in off-plan sale transactions being twice as high in the first half of 2024 compared to the secondary market. Buyers are increasingly willing to pay more per square foot for new constructions, indicating strong confidence in the market.

Economic Resilience

S&P Global also highlights the resilience of Dubai's economy, predicting an average real GDP growth of around 3% from 2024 to 2027, following a robust growth of 3.3% in 2023. The expected GDP per capita is projected to be about $38,000 in 2024, further reinforcing Dubai’s economic stability.

Adjustments in Market Dynamics

The study notes a slowdown in new project launches over the next 12-24 months, as the market has absorbed much of the available supply. While developers are financially stable, they will likely remain responsive to changes in demand. This may involve selling smaller units during price increases or adjusting payment plans in a weaker market.

According to Property Monitor's September report, the market saw record highs in new off-plan developments, with over 13,500 units launched in the first nine months of the year, totaling a combined gross sales value of AED28.9 billion. Although 2024 has seen more units launched than in 2023, the total sales value has not reached the same heights, falling short by AED30 billion.

Future Outlook

Looking ahead, S&P Global projects that the share of luxury developments may decrease in 2025 as developers focus more on affordable and mid-market properties. Despite the higher margins that luxury developments generate, the market for such properties remains relatively limited.

In conclusion, while the Dubai property market shows promising stability, a shift in dynamics may lead to lower prices and rents as supply increases. Investors and potential buyers should stay informed and prepared for these upcoming changes in the vibrant Dubai real estate landscape.