Dubai’s residential market could be facing a shortfall in the long-term with a projected population growth fuelling the need for a development boom.
According to a forecast by real estate consultancy Knight Frank, external drivers such as the recently announced Dubai Economic Agenda ‘D33’, which outlines a roadmap for the emirate to double its GDP by 2033, will result in a demand for human resources. The population by this stage is expected to approach six million, up from 3.5 million today, with the Dubai Urban Master Plan 2040 taking this number to 7.8 million a few years later.
“The predicted growth in the city’s inhabitants will warrant the need for a large-scale residential development boom. Indeed, the city’s current housing stock will virtually need to double if the population targets are to be met, which the government expects to swell to 7.8 million by 2040,” said Faisal Durrani, Partner – Head of Research, Middle East & Africa for Knight Frank.
“The signs are already pointing to the projected shortfall in homes over the long-term. First there is Dubai’s GDP which grew by 2.8% in the 12 months ending Q1, with sectors like retail, trade, aviation, and hospitality continuing to dominate, driving the city to earn the accolade of the highest average hotel occupancy levels in the world during H1 at 78% across the emirate’s nearly 150,000 rooms. Furthermore, the emirate’s non-oil sector PMI has remained in expansionary territory for over two and a half years. Businesses are actively recruiting and expanding, resulting in a Grade A office supply crunch,” he added.
Although supply already remains tight in prime neighbourhoods across Dubai, the construction pipeline for new homes across the rest of the city continues to expand, according to experts.
By the end of 2028, Knight Frank expects 85,200 homes to be delivered, with 69% of them being apartments (59,000 units). About 40,000 homes are projected for completion this year alone, with a portion likely delayed to next year.
“Excluding 2023 and assuming all 40,000 homes forecast to be completed this year are delivered on time, 42,500 units are scheduled for completion between 2024 and 2028, representing an average of just 8,500 homes per year – a 75% reduction on the long-term rate of home deliveries,” said Shehzad Jamal, Partner – Head of Strategy & Consultancy, Middle East & Africa, Knight Frank.
The industry expert added this momentum was strongly hinting at a continued upward pressure on prices as well, particularly as population continues to swell.
According to figures released by the Dubai Land Department, the real estate sector in the emirate saw 76,119 transactions worth 283 billion dirhams ($77 billion) in the first half of the year, with the coveted Golden Visa also boosting demand amongst foreign investors.
Latest findings by Knight Frank revealed that a continued sustained demand has driven up the price of homes across Dubai, with the sector recording a 4.8% increase in Q2 2023 over the first quarter, with a 17% spike reported over 12 months.
Data revealed that apartment prices recorded an uptick of 21% since January 2020 and currently average AED 1,290 per square foot. Villa prices, which remain in demand, have experienced an even stronger growth of 51% over the same period and are currently priced at an average of AED 1,520 per square foot.
“Despite the substantial increase in prices, city-wide values still trail the 2014 peak by 11%. And as things stand, the relatively long-run of price growth is showing no signs of slowing. If anything, all the market dynamics continue to point toward further increases, particularly when it comes to villas as the supply-demand dynamic remains out of kilter,” said Durrani, adding this was especially true in the city’s prime markets of Jumeirah Bay Island, Emirates Hills and the Palm Jumeirah, where villa prices are up by 11.6% in Q2 and by a125% since January 2020.
“Not to be outdone, villa prices across the rest of the city too remain supercharged and are 5% higher than the 2014 peak. More affordable locations, on a price per square foot basis, are also experiencing strong price increases. Villas in Dubai Hills Estate, for instance, have registered 24% growth in values in the last 12-months alone; the fastest rate of growth in the city,” he added.
(Writing by Bindu Rai, editing by Brinda Darasha)