A recent analysis by real estate firm Knight Frank predicts that the Dubai real estate bubble will continue to push up home prices by 8% in 2025, supported by a dearth of supply.
The ‘Dubai Residential Market Review: Special Edition’ study reveals that house prices across the emirate currently stand 19.9% higher than the same time last year, “evidenced by the surge in property transactions throughout 2024.”
According to Knight Frank, the number of transactions in Q3 2024 hit 47,269, the largest quarterly total ever recorded, representing a 41.8% rise over the same time in 2023.
Over 306.3 billion UAE dirhams ($83.4 billion) worth of deals were made between January and September 2024, a 36% increase over the same period in 2023. Sales totaled AED 116.8 billion in Q3 alone.
“House prices in Dubai continue to be fuelled by relentless demand. Unsurprisingly, prices in the mainstream market continue to edge upwards, climbing by 4.3% in Q3, taking city-wide prices up by 19.9% on this time last year…,” Faisal Durrani, Partner – Head of Research, MENA, said.
He continued: “Across the city, there has been a 30% year-on-year decline in the number of property listings. Furthermore, the rate at which luxury homes are selling has also continued to climb, tripling over the last 18 months to almost one in every five homes listed being sold between June and September.”
The research shows how the percentage of properties in Dubai worth more than $1 million has increased, rising from 6.3% of all sales in 2020 to 18.1% at present.
“This effectively means nearly 1 in every five homes in Dubai is worth over $1 million,” Durani said.
Nonetheless, the analysis suggests that the rate of increase in home prices will start to decline in 2025, which may provide some relief for prospective purchasers.
“For Dubai’s prime residential market, following an increase of 6% the last twelve months, we expect values to end 2024 in line with our original consensus forecast of 5% issued last autumn,” Durrani said, adding that for 2025, they are forecasting growth to be more modest and closer to 5%, “which builds on the 44.4% growth registered during 2022 and the 16.3% increase last year.”
Supply concerns
Knight Frank, a real estate firm, estimates that around 300,000 residences are expected to be built in Dubai between now and the end of 2029, indicating that developers have been vying for the increasing demand for housing.
By 2029, apartments will make up 80.1% of the supply, with villas making up 17.4%.
With only 8,900 new villas anticipated by the end of 2024 and another 19,700 by the end of 2025, data indicates that the villa shortage will continue.
According to Knight Frank, Dubai would require between 37,600 and 87,700 homes annually by 2040 to house 5.8 to 8.6 million people.
“Assuming historical delays of up to 30% of units each year persist, 210,000 units will realistically be completed over the next six years. This translates into 35,000 homes per year for the next six years, hinting at a likely long-term shortfall in housing…,” the report said.
Petri Mannila, Partner – Head of Prime Residential UAE, added: “The limited availability of sites across key locations in the city is also contributing to rising prices for off-plan homes, while stock in the secondary market too is experiencing significant price growth, especially where older homes have been refurbished.”
Although the long-term growth of house prices is anticipated to be supported by a supply-demand imbalance, Knight Frank also pointed out macroeconomic risks that could impact residential value, including a global economic slowdown, fluctuations in oil prices, and competition from gateway cities like Riyadh.