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Dubai Steps up Efforts to Revive Property Market

After six years of recession, Dubai property market is picking up steam thanks to the influx of wealthy foreigners into the Gulf emirate, which has served as a rescue from restrictions and lockdowns, thus reviving a recovering economy. Much property for sale in Dubai has not found buyers so far, and since 2014, darkness reigned in this sector.

Border closures due to the COVID-19 pandemic have halted sales. Unlike other Gulf states, the economy of Dubai, one of its seven federations of the Arab state, uses not black gold, but tourism, trade, finance and real estate, which account for just over 7% of the economy. According to official figures, in the first six months of 2020, the emirate’s economy fell by about 10%. The real estate sector (about 8% of GDP) recorded a decline of 3.7%. The authorities have made one of the most intense vaccination campaigns in the world. Despite a spike in cases following the Christmas holidays, life in the emirate continued without much restriction, with open springs and hotels.

One mansion was sold for almost 25 million euros, a record in recent years on an artificial island.

Why Dubai property is so attractive

The main reason is the high development rates of the local real estate market, the growth in demand and, as a result, the increase in purchasing activity, as well as the good dynamics of the construction industry.

The positive dynamics is due to the following factors:

  • At the state level, preparations are underway for the international exhibition World Expo 2020 to be held in Dubai, which, according to preliminary estimates, will attract at least 25 million visitors during its operation;
  • The tourism and hospitality industry are actively developing, which is reflected in an increase in supply in the hotel and retail sectors. On the one hand, this is due to the upcoming exhibition, since the country’s current room stock can hardly cope with the expected influx of guests; on the other hand, the development of these industries is the result of government efforts aimed at diversifying the economy;
  • Expanding the range of assets brought to the real estate market entails the emergence of diverse categories of buyers, including end users of properties, investors, expatriates, counterparties and representatives of public organizations, etc.;
  • Comprehensive regulation of investment activities at the state level ensures the transparency of the market and its attractiveness for foreign investors, who, among other things, have the opportunity to purchase real estate on a freehold basis (that is, in full ownership). Today, the UAE is ranked 40th in the global ranking of the most transparent real estate markets.

Despite the fact that real estate is traditionally considered the easiest type of real estate to manage, more and more apartments in the UAE are purchased by end buyers, i.e. potential tenants. In other cases, arab apartments in Dubai are purchased for commercial purposes by local residents. As for foreign investors, they more often choose commercial real estate as a financial asset, since the level of profitability is usually higher, and management can be carried out at the expense of an intermediary. In addition to traditional office and retail space, investors are also showing interest in buying apartments and hotel rooms, which are characterized by great potential due to the country’s developed tourism.

Dubai commercial property with brilliant potential

All over the world, Dubai is known as a dynamic multinational metropolis with significant scientific and technological progress and a high level of economic diversification. Last but not least, this became possible due to the rapid development of the tourism industry – according to the latest data from the government of the emirate, the contribution of this industry to the country’s GDP is about 20%.

Despite the relatively small size of the city, the number of vocation suits in Dubai exceeds 100 000, making it one of the largest hotel markets in the world. In addition, the level of profitability and occupancy of local hotels is comparable to those of the most popular sites, and in the region of the Middle East and Africa, Dubai is the undisputed leader. As a result, private and institutional investors are showing interest in this site.

In 2017 Dubai entered the category of “growing giants”, becoming a worthy competitor to Bangkok and Shanghai. The reasons why the emirate received such a high rating are impressive size of the hotel real estate market, high speed of its development, positive statistics on key indicators, as well as the growing flow of air passengers.

Global statistics show that in terms of the number of visitors, Dubai ranks fourth among all tourist destinations on the planet. This means that the potential for further development of the emirate’s tourism and hospitality industry is extremely high – in particular, developers, hoteliers and other market players should make efforts to develop the mid-price segment, represented by three- and four-star hotels.

Commercial property in Dubai: apartments and hotels

The segment of luxury hotel real estate in the emirate is already quite saturated – most of the hotels operating here have a five- and four-star rating.

Thus, the largest potential in Dubai is in the mid-range hotel segment, which is still underdeveloped, and it is on this segment that investors, hoteliers and developers are now focusing their attention. Hotels and hotel-type apartment complexes that combine high quality and relatively low prices are in great demand from a wide range of tourists with average incomes. This allows them to stay in the emirate for a longer period or spend the released amount on entertainment or shopping.

Analysts add that three- and four-star hotels will give the market a new impetus for growth – their construction is relatively inexpensive for developers, and, in addition, such properties, due to their low cost, reduce the risk of market overheating and attract even more investors to the emirate.

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