An anticipated increase in population could cause a long-term shortage in the residential market in Dubai, requiring a development boom.
According to a prediction made by the real estate consulting firm Knight Frank, there would be a demand for human resources as a result of external forces like the newly unveiled Dubai Economic Agenda, or “D33,” which sets a plan for the emirate to double its GDP by 2033. By this point, the population is projected to be around six million, up from the current 3.5 million, and the Dubai Urban Master Plan 2040 expects this figure to reach 7.8 million a few years later.
“The predicted growth in the city’s inhabitants will warrant the need for a large-scale residential development boom. Indeed, the city’s current housing stock will virtually need to double if the population targets are to be met, which the government expects to swell to 7.8 million by 2040,” said Faisal Durrani, Partner – Head of Research, Middle East & Africa for Knight Frank.
“The signs are already pointing to the projected shortfall in homes over the long term. First, there is Dubai’s GDP which grew by 2.8% in the 12 months ending Q1, with sectors like retail, trade, aviation, and hospitality continuing to dominate, driving the city to earn the accolade of the highest average hotel occupancy levels in the world during H1 at 78% across the emirate’s nearly 150,000 rooms. Furthermore, the emirate’s non-oil sector PMI has remained in expansionary territory for over two and a half years. Businesses are actively recruiting and expanding, resulting in a Grade A office supply crunch,” he added.
Despite the fact that supply is already limited in Dubai’s most desirable areas, construction on new homes is still expected to increase throughout the remainder of the city, according to analysts.
Knight Frank anticipates that 85,200 residences will be completed by the end of 2028, with 59,000 apartments making up 69% of those homes. A total of 40,000 residences are anticipated to be finished this year, with some possibly taking place in 2019.
“Excluding 2023 and assuming all 40,000 homes forecast to be completed this year are delivered on time, 42,500 units are scheduled for completion between 2024 and 2028, representing an average of just 8,500 homes per year – a 75% reduction on the long-term rate of home deliveries,” said Shehzad Jamal, Partner – Head of Strategy & Consultancy, Middle East & Africa, Knight Frank.
The sector expert noted that this pace definitely suggested that costs would continue to rise as well, especially given the growing population.
Sustained demand
In the first half of the year, the real estate market in the emirate saw 76,119 transactions totaling 283 billion dirhams ($77 billion), with demand from overseas investors also being boosted by the highly sought-after Golden Visa.
According to the most recent research by Knight Frank, a persistent sustained demand has driven up the price of properties across Dubai, with the sector posting a 4.8% gain in Q2 2023 over Q1 2023 and a 17% increase over a 12-month period.
Data showed that since January 2020, apartment prices have increased by 21%, with the current average price per square foot being AED 1,290. Villa prices, which are still in demand, have grown even more over the same time period, soaring 51%, to an average of AED 1,520 per square foot.
“Despite the substantial increase in prices, city-wide values still trail the 2014 peak by 11%. And as things stand, the relatively long-run of price growth is showing no signs of slowing. If anything, all the market dynamics continue to point toward further increases, particularly when it comes to villas as the supply-demand dynamic remains out of kilter,” said Durrani, adding this was especially true in the city’s prime markets of Jumeirah Bay Island, Emirates Hills and the Palm Jumeirah, where villa prices are up by 11.6% in Q2 and by a125% since January 2020.
“Not to be outdone, villa prices across the rest of the city too remain supercharged and are 5% higher than the 2014 peak. More affordable locations, on a price-per-square-foot basis, are also experiencing strong price increases. Villas in Dubai Hills Estate, for instance, have registered 24% growth in values in the last 12 months alone; the fastest rate of growth in the city,” he added.