The residential market in Dubai may see a long-term scarcity due to a predicted increase in population, necessitating a development boom.
The recently revealed Dubai Economic Agenda, or “D33,” which lays out a strategy for the emirate to double its GDP by 2033, is one external influence that will cause a demand for human resources, according to a projection made by the real estate consulting firm Knight Frank. The population of Dubai is expected to have increased from its current 3.5 million to roughly six million by this time, and the Dubai Urban Master Plan 2040 anticipates that number would increase 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.
Analysts predict that new home building will continue to rise across the rest of Dubai, despite the fact that supply is already constrained in the city’s most coveted districts.
According to Knight Frank, 59,000 apartments will make up 69% of the 85,200 dwellings that will be finished by the end of 2028, or 85,200 total homes. It is predicted that 40,000 homes will be completed this year, with some possibly taking place in 2019.
“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 observed that given the rate of inflation and the expanding population, it was certain that costs would also continue to climb.
Sustained demand
The emirate’s real estate market saw 76,119 deals worth 283 billion dirhams (about $77 billion) in the first half of the year, with demand from foreign investors also being fuelled by the highly sought-after Golden Visa.
The price of houses in Dubai has increased due to persistent sustained demand, according to the most current data by Knight Frank, with the sector recording gains of 4.8% over the previous quarter and 17% over a full year.
According to data, prices for apartments have climbed by 21% since January 2020, with the current average price per square foot being AED 1,290. In the same time frame, villa prices—which are still in demand—have increased even more, rising 51% to 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.
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