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Dubai rebound spurs surge in property prices, sales, rentals

Building on a strong rebound, Dubai’s resilient economy will likely support real estate prices and rental increases in 2022 as high oil prices remain an important positive factor for investor sentiment.

Market experts expect 2022 to deliver moderate increases in prices and rents as well as strong sales, which will encourage developers to continue to launch new projects as Dubai’s economy sustained its upswing after expanding at an estimated 3.5 per cent in 2021.

Analysts at S&P Global Ratings forecast that developers’ revenue growth would accelerate over the next 4-5 years, tempered by a structural oversupply of residential properties and the delivery of new developments.

“High oil prices will remain an important positive factor for investor sentiment in the GCC region. Pressure on profitability will ease and S&P adjusted debt to Ebitda metrics will improve. While new projects that are working capital-intensive will limit this deleveraging for some, interest rate hikes will affect capitalisation rates and weaken loan to value ratios,” Tatjana Lescova and Sapna Jagtiani, analysts wrote in S&P Global Ratings’ latest report “Dubai property market 2022: Reinvigorated by strong demand.

They said higher energy prices and cost inflation will motivate companies to focus on cost efficiencies. “Developers are somewhat protected from the impact of higher raw materials costs in the short run, which are carried by contractors.

Some companies may consider non-core assets disposals as valuations rise.”

“Geopolitical tensions and their economic fallout are a key risk, but we expect Dubai will attract interest as a safe haven for wealthy individuals,” S&P analysts said, adding that the introduction of corporate taxes in the UAE is viewed as a manageable medium-term risk, with no cash impact before 2024.

They observed that strong demand was demonstrated by a 60 per cent surge in transaction numbers, price increases, and record presales for developers. Properties are relatively affordable with prices 25 per cent-30 per cent below 2014’s peak, despite a significant uptick in 2021.

With the ongoing rise in transaction volumes and strong demand for off-plan properties as villas outperform apartments, market pundits expect increased new project launches, led by villa developments, in response to sustained demand and depleted inventory.

According to Chestertons’ Research, for investors, the market offers strong rental returns. Average apartment rents in Dubai rose by four per cent over Q4 2021, following a broadly stable Q3 — the steepest increase since 2014.

The addition of about 30,000 units over 2022 should moderate price and rent increases, despite inflation and raw material price increases being passed through to customers, they said.

However, there would be slower growth in mortgage transaction volumes (about 20 per cent-25 per cent of total sales) due to interest rate hikes, which will be partly offset by favourable payment plans

Going forward, Dubai’s economy should benefit over the medium term from government initiatives, including new visas, more liberal social laws, workweek alignment, and relaxation of company ownership rules, analysts argued.

In February, Dubai’s real estate continued its upward trend as the investors and end-users explored best buying options for residential properties on a long-term lease, according to ValuStrat Price Index (VPI), which recorded steady price growth of just over one per cent in February due to demand for residential properties in Dubai.

According to property Finder, since the beginning of the Expo 2020 Dubai, the market has seen 23,739 sales transactions worth Dh63.43 billion.