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How villa valuations doubled since the pandemic, and what’s happening to the apartment market?

Over the past three years, Dubai's villa communities have undergone a remarkable transformation, with valuations nearly doubling since the onset of the COVID-19 pandemic. This surge in value has been particularly pronounced since 2020, as villa prices experienced a sharp ascent, reaching an average annual capital gains rate of 33.9% during 2022. As of October 2023, several villa communities have either surpassed or are on the verge of having doubled in their value compared to 2020. Astonishingly, villas in Dubai have not only recovered but have also exceeded their previous price peaks witnessed nearly a decade ago.

In the last 36 months, the valuations of freehold villas in Dubai have witnessed a significant appreciation, ranging between 55.9% and 115.2%. This robust growth stands in stark contrast to the apartment market, where the range is more modest, spanning from 5.1% to 63% over the same three-year period. Intriguingly, not a single apartment community has managed to reach its price peak levels from 2014, highlighting a divergence in the performance of the villa and apartment segments of the real estate market in Dubai.

It's crucial to underscore that Dubai's residential landscape is heavily skewed toward apartment buildings. As of the beginning of 2023, official figures from the Dubai Statistics Center reveal that the urban areas of Dubai consist of 638,671 apartment units compared to just 143,519 private houses, investment villas, and townhouses. In other words, single-family houses constitute less than a fifth of all homes in Dubai. The same official source estimates that the average household size is 4.1, emphasising the demand for two-to-three-bedroom properties. However, this demand comes with the caveat that adequate purchasing power must align with the associated rental or purchasing costs. In general, the majority of Dubai's population finds it challenging to afford three-bedroom homes, either for buying or renting.

Five years ago, Dubai's real estate landscape underwent a transformative shift. In late 2018 and throughout 2019, market affordability was heightened, with the citywide average price per square foot falling below AED 1,000. The market downturn saw the introduction of 10,000 new villas and townhouses, lowering rents and prices, making larger homes accessible to tenants, and enabling buyers to negotiate favorable terms with low-interest rates.

The landscape shifted dramatically with the onset of the COVID-19 pandemic in March 2020, leading to a global lockdown. As residents in Dubai adapted to staying at home, the real estate market experienced further price declines when it began to reopen. The citywide average price per square foot dropped to less than AED 800, making the prospect of buying or renting a large home suddenly more affordable. A new demand driver emerged in the form of the home-office hybrid, as people increasingly worked and children were educated from home. This trend resulted in heightened demand for larger villas, and to a lesser extent, larger apartments. Notably, in 2020 and 2021, the average size of a purchased residential unit was no less than 2,000 square feet, marking a 42% increase compared to the average size of homes sold back in 2014.

Presently, a shift is evident in the market dynamics. The average price per square foot has risen to slightly above AED 1,500, with villas establishing new price highs. Concurrently, the average size of acquired homes has decreased to 1,300 square feet, marking a 27% reduction compared to dwellings purchased two years ago. Villa price increments are occurring at more moderate rates than previously observed. Additionally, apartments are beginning to experience some price appreciation, albeit grappling with challenges, especially in locales anticipating new inventory in the coming years.

For a detailed perspective on the property market, visit: Dubai - Real Estate Review Q3 2023