Dubai’s real estate bubble risk is the second-lowest after Warsaw among the world’s 25 major cities as the nominal house price growth across the world accelerated to 10 per cent on average from mid-2021 to mid-2022 amid signs that the global housing boom is coming to an end, a study by a leading Swiss bank says.
Despite a buoyant year, the Dubai housing market, now only back to its 2019 price level, and still 25 per cent below its 2014 peak, is in fair-valued territory, according to the UBS Global Real Estate Bubble Index, which says that Toronto and Frankfurt exhibit the most elevated risk levels on housing markets.
Dubai’s house price growth is likely to remain high in the coming quarters, but growth rates will gradually recede amid higher financing costs.
“In the long term, with existing oversupply and new construction continuing to outstrip population growth, Dubai’s real estate ride will most likely remain bumpy,” says Matthias Holzhey, lead author of the study at UBS Global Wealth Management.
Risks are also elevated in Zurich, Munich, Hong Kong, Vancouver, and Amsterdam. Notably, Tel Aviv and Tokyo join the group of cities in the bubble risk zone for the first time since UBS began to publish this report in 2015 as imbalances in global metropolitan housing markets continue to be highly elevated and prices are out of sync with rising interest rates.
Milan and Sao Paulo are two other cities with the lowest property bubble risks.
“Dubai’s two-decade property roller coaster continues to chug along. After seven years of falling housing prices, Dubai’s housing market rebounded to a nominal price growth of 10 per cent between mid-2021 and mid-2022. Growth was even stronger in the prime market. However, the market is now only back to its 2019 price level, and still 25 per cent below its 2014 peak,” says Holzhey in the report.
The post-pandemic reopening of Dubai’s economy and surging oil prices have propelled the recovery. Disposable income growth has now turned positive for the first time since the beginning of the pandemic, the UBS report says.
“Looking ahead, Dubai’s property market is likely to benefit from a new visa program with looser residence requirements for skilled professionals and new regulations increasing transparency of transactions. Dubai is already attracting more skilled and wealthy migrants from other regions, where the investment climate has become less favourable. This population inflow has impacted both the prime owner-occupied and the rental market. Rents bottomed out last year and have climbed by 22 per cent since mid-2021. As these new tenants settle in, they will eventually become potential buyers,” says the report.
According to a property market pundit, James William Portman, Dubai’s property market has seen exponential growth for the past couple of years despite the pandemic restrictions. As Dubai coped with the pandemic much better than virtually all other countries, any talk of the next Dubai property crash 2022-2023 is far from investors’ minds. Investors adopting a long term Dubai off-plan property investment strategy will mitigate any short term losses by any market.
Ata Shobeiry, chief executive of Zoom Property, said Dubai property market continues to thrive as it broke a 9-year record last month.
"The demand is majorly fuelled by HNWIs, and foreign investors as various segments of the market continue to perform well. Along with property prices, rents in Dubai have also increased over the last couple of years," he said.
"The prices are further set to accelerate. And with more investors and HNWIs foraying into the market, 2022 is expected to end on a stronger note, thereby making it one of the top real estate destinations globally that are not facing the bubble risk," he said.
UBS report said mortgage rates have almost doubled on average across all cities analysed since their lowest point in mid-2021. Combined with notably increased real estate prices, the amount of living space that is financially affordable for a highly-skilled service worker is, on average, one-third lower than it was right before the pandemic.
“Inflation and asset losses due to current turmoil in the financial markets are reducing household purchasing power, which curbs demand for additional living space. Housing is thus also becoming less attractive as an investment, as borrowing costs in many cities increasingly exceed the yields of buy-to-let investments,” says Claudio Saputelli, head of Real Estate at UBS Global Wealth Management’s Chief Investment Office.
In the US, all five analyzed cities are in overvalued territory with the imbalance more distinct in Miami and Los Angeles than in San Francisco, Boston, and New York. Housing markets in Stockholm, Paris, and Sydney remain overvalued despite some cooling trends. Other housing markets with signs of overvaluation include Geneva, London, Madrid, and Singapore.
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