According to a recent analysis, Dubai surpassed the world’s top residential real estate markets in 2022 as capital values increased 12.4% compared to the global average of 3.2%.
The emirate is anticipated to experience sustained growth in capital values this year as the real estate consultant anticipates up to 7.9% price growth in the best locations. Savills named the emirate first in its Prime Residential Global Cities Index for 2023.
One of the most alluring real estate markets in the world, Dubai’s prime capital values reached $730 per square foot.
“The regional hubs of Dubai and Singapore are forecast to top the global price growth charts in 2023. Both cities will continue to see sustained inflows of high net-worth individuals, however, they are not immune to higher interest rates and wider economic headwinds,” said Swapnil Pillai, associate director for Middle East Research at Savills.
According to him, Dubai’s anticipated prime price growth of between 6% and 7.9% is less than the 12.4% growth it saw in 2022.
“There is still some headroom for growth for Dubai, given its sustained demand levels and lower prime property per sq ft costs compared to other global markets,” Pillai said.
According to the Savills analysis, the prime residential world city markets are expected to slow down significantly in 2023, with average price growth of 0.5% predicted across the 30 international locations the real estate consultancy’s Prime Residential World Cities Index tracks.
“Of the 30 major global cities tracked, 17 will record slower capital value growth than in 2022. However, 13 cities are expected to register equal or even slightly enhanced growth in 2023,” according to the report.
Highest capital value growth
According to the analysis, Miami and Dubai had the highest levels of capital value growth in 2022, with rates of 25.4% and 12.4%, respectively. Singapore was next, with a rate of 6.8% and a price of $1,550 per square foot.
“Whilst lower than the highs of 2021, growth has been fuelled by pent-up demand from both international and domestic buyers, a lack of quality stock, and the inflow of high net-worth individuals, companies, and family offices,” according to the report.
With capital value increases of 5.1% and 3.1%, respectively, in 2017, Cape Town, South Africa, and Rome, Italy, took fourth and fifth place.
Kuala Lumpur stood firm in sixth position with 2.9 percent capital value growth last year. The Savills Prime Residential Global Cities Index for 2023 ranked the capital of Malaysia as the most inexpensive city, with prime regions costing $270 per square foot.
The final four cities on the Savills Prime Residential Global Cities Index top 10 list were Mumbai (India), Madrid, Barcelona, and Hangzhou (China).
According to Oxford Economics, each of these cities will see a 15% increase in the number of households with an annual income of over $250,000.
In Dubai, it is anticipated that in the following seven years, the number of these families will increase by half, to just under 50,000 households.
“Capital values rose by an average of 3.2 percent across the 30 cities we monitor in 2022, with the second half of the year only contributing 0.7 percent as the deteriorating economic situation and higher interest rate environment took effect,” said Paul Tostevin, head of Savills World Research.
Although the second half of the year has some promise for global economic growth, the recessionary conditions, a rising interest rate environment, and inflation will affect prime residential performance, according to him.
Rents outperform capital values
According to research by a real estate firm, rentals will outpace capital values in 2022 as average prime rental values rise by 5.9% due to a shortage of available inventory and escalating demand. Throughout the same period, capital values rose by 3.2% on average.
Rental increases resulted from individuals staying in cities once pandemic-related restrictions were lifted and from quickly rising interest rates in the second half of 2022, which led more people to opt for renting as a “wait and see” strategy.
Lisbon and Dubai had increases in prime rental rates of 25.4% and 22.9%, respectively, last year. Both cities benefited from an inflow of buyers seeking a high quality of life due to the favorable weather and business-friendly environments of these cities.
When the country opened up and saw significant demand from students, ex-pats, and high net-worth individuals migrating to the city, Singapore led the prime rental market rise with rates climbing 26.2%.
Dubai offers the best yields
Globally, prime yields averaged three percent in 2022 and moved out the fastest in Dubai, Singapore, and London. Dubai (+60 basis points (bps), to 5.3 percent) and Singapore (+40bps, to 2.9 percent) have seen substantial inflows of international tenants, leading average yields to rise above pre-pandemic levels.
“Prime yields in London rose by 25bps to 3.2 percent; the city remains a global higher education hotspot, and international student demand further accelerated the lack of prime stock in the city,” according to the report.
While rents grew more slowly than capital values since the pandemic began, yields in Chinese cities have decreased. While the prime rental market remained strong for the majority of 2022, landlords had to lower rents as demand started to decline in China’s major cities due to political turbulence.