Dubai surpassed all other top residential real estate markets worldwide in 2022, with a remarkable increase of 12.4% in capital values, far exceeding the global average of 3.2%.
This year, Dubai’s capital values are projected to continue their steady ascent, with prime areas anticipated to witness price hikes of up to 7.9%. Savills has crowned Dubai as the leading city in its Prime Residential Global Cities Index for 2023.
Dubai’s premium capital values have soared to $730 per square foot, solidifying its position as one of the most attractive real estate markets globally.
According to Swapnil Pillai, Associate Director for Middle East Research at Savills, “The regional hubs of Dubai and Singapore are expected to outperform other cities in terms of price growth in 2023. While both cities will continue to attract high-net-worth individuals, they may face challenges stemming from higher interest rates and broader economic headwinds.”
Pillai believes that Dubai’s projected prime price growth of 6.9% to 7.9% will be lower than the 12.4% growth witnessed in 2022.
“Dubai still has room for growth due to sustained demand levels and comparatively lower prime property costs per square foot when compared to other global markets,” Pillai added.
The Savills report forecasts a significant slowdown in the prime residential global city markets in 2023, with an average price increase of 0.5% expected across the 30 international locations tracked by the real estate consultancy’s Prime Residential World Cities Index.
According to the report, of the 30 major global cities analyzed, 17 are anticipated to witness a deceleration in capital value growth compared to 2022. However, the report indicates that 13 cities are expected to maintain or potentially improve their growth in 2023.
Highest capital value growth
The report reveals that Miami and Dubai emerged as the leading performers in capital value growth in 2022, with growth rates of 25.4% and 12.4% respectively. Singapore secured the second position with a growth rate of 6.8% and an average cost of $1,550 per square foot.
The report attributes this growth to pent-up demand from both international and domestic buyers, limited availability of high-quality properties, and the influx of high net-worth individuals, companies, and family offices.
Cape Town, South Africa, and Rome, Italy, claimed the fourth and fifth spots, experiencing capital value increases of 5.1% and 3.1% respectively in 2017.
Kuala Lumpur maintained its sixth-place ranking, registering a 2.9% gain in capital values last year. The Malaysian capital was recognized as the most affordable city in the Savills Prime Residential Global Cities Index for 2023, with prime areas priced at $270 per square foot.
The remaining cities in the top 10 list of the Savills Prime Residential Global Cities Index were Mumbai (India), Madrid, Barcelona, and Hangzhou (China).
Oxford Economics predicts a 15% increase in the proportion of households earning more than $250,000 annually in each of these cities. Specifically in Dubai, it is projected that the number of such households will grow by 50% over the next seven years, reaching nearly 50,000 households.
Paul Tostevin, head of Savills World Research, commented, “Across the 30 cities we monitor, capital values increased by an average of 3.2% in 2022, with only 0.7% growth observed in the second half of the year due to the challenging economic conditions and rising interest rates.” He further stated that prime residential performance will be influenced by the economic downturn, the rising interest rate environment, and inflation, although there are some positive indications for global economic development in the latter part of the year.
Rents outperform capital values
According to research conducted by a real estate firm, the rental market is expected to outperform capital prices in 2022 due to limited available inventory and increasing demand. The study predicts an average increase of 5.9% in prime rental values, while capital values only experienced an average increase of 3.2% during the same period.
As pandemic-related restrictions eased, people chose to continue living in cities. Additionally, the rapid rise in interest rates in the second half of 2022 prompted more individuals to adopt a “wait and see” approach by opting to rent.
Lisbon and Dubai saw significant growth in premium rental rates, with increases of 25.4% and 22.9% respectively. Both cities attracted buyers seeking a high quality of life and favorable business environments.
Singapore led in terms of prime rental market growth, with rates rising by 26.2% when the country reopened. The city witnessed substantial demand from students, expatriates, and high net-worth individuals relocating to Singapore.
Dubai emerges as the top destination for attractive yields. In 2022, Dubai, Singapore, and London recorded the quickest movement of prime yields, with a global average of 3%. Foreign tenant inflows have driven average rates in Dubai (increasing by 60 basis points to 5.3%) and Singapore (increasing by 40 basis points to 2.9%) above pre-pandemic levels.
The report states, “Prime yields in London rose by 25 basis points to 3.2%. The city remains a global hub for higher education, and the increased demand from international students further exacerbated the shortage of prime properties in the city.”
While capital values have grown at a slower pace than rents since the start of the pandemic, yields in Chinese cities have declined. Throughout most of 2022, the prime rental market remained robust. However, political unrest in major Chinese cities led to landlords reducing rents.
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