Real estate markets are in flux, so why is Dubai's property scene booming?

The real estate market sets itself apart from alternative investments like gold, stocks, cryptocurrencies, and derivatives. It provides a sense of stability, even when prices fluctuate, attracting investors who have seen substantial gains over time. This progression has enabled them to expand their portfolio, capitalize on long-term value appreciation, and establish an extra source of dependable income.

To provide an example, in 2021, the worldwide housing market attained a remarkable value of around $28,917.7 billion. Predictions indicate that it is anticipated to reach nearly $4,923.3 billion by 2031. This expansion can be credited to the underlying economic factors of the supply and demand equation: on a global scale, there is a consistent growth in the desire for housing, as the population of the world increases and urbanization drives a push towards popular locations. Simultaneously, real estate represents physical spaces or portions of land that are owned - and land is scarce. As demand rises and supply remains limited, prices increase.

Efforts made by governments to encourage real estate investments contribute to this phenomenon. The United States and Australia provide loans to individuals at discounted rates, while Canada offers golden visas to foreigners keen on investing in property. Similarly, popular tourist destinations such as Dubai, France, and Malaysia also provide enticing benefits to attract foreign investors.

The past few months have seen a continued period of uncertainty in the financial markets. Fluctuating interest rates and an uncertain economic future have negatively impacted investors' confidence. The consistent increase in interest rates, combined with problems within the banking industry, has introduced even more instability in the real estate lending market. As a result, lending standards have become stricter worldwide, adding pressure to an already strained market for debt issuance. While the rate hikes have affected real estate lenders in general, the failures within the banking sector have particularly affected banks. Regulators are now expressing concerns over these banks' exposure to commercial real estate.

Groups participate in ultimate frisbee matches at Black Palace Beach in Dubai. The secure and pleasurable way of life in the emirate has contributed to the remarkable success of its real estate market.

The housing market in Europe is slowing down and there is not enough supply to meet the demand. This has made the situation even worse. Also, it has become more difficult for people to get financing, which has caused investment in the market to decrease even more. On the other hand, the residential sector in the Asia Pacific region is still attracting more people, despite slower activity in Japan. This is mainly because there are fewer foreign buyers and the difference between the asking price and the bid price is larger. Overall, the amount of activity in the region has gone down.

Dubai shines above other well-known areas for investing in property because it is a place where you don't have to pay taxes, which makes it really appealing. This year, people who invest in Dubai are still feeling really positive, and the market for houses and apartments continues to go up, with prices going up by 5.6 per cent in the first three months. This is the ninth time in a row that it has gone up, because people really want fancy vacation homes and because Dubai is becoming a really important place for luxury stuff.

The United Arab Emirates Central Bank has decided to retain its benchmark borrowing rate, specifically the base rate for the overnight deposit facility, at a steady 5.15%. On the other hand, the US Federal Reserve, after raising its benchmark rate for the tenth consecutive time in the previous month, has opted to keep its range unchanged at 5% to 5.25%.

According to these opinions, the increase in interest rates is predicted to have a small effect on the real estate sector. Moreover, in the United Arab Emirates, the lack of property taxes, the attractive rental income, the affordable price per unit area, and the introduction of residency and golden visa programs, along with various other investment-friendly measures, will keep attracting buyers and stimulating expansion.

Dubai has experienced relatively positive outcomes despite inflation, largely thanks to its speedy growth in both the petroleum and non-petroleum industries.

Moreover, the government of the United Arab Emirates implemented strategies to lessen the impact of rising prices, including increasing the interest rates on home loans. Nonetheless, this is merely a fraction of the overall scenario. Dubai takes advantage of substantial influxes of affluent individuals in search of opulent and expensive real estate, primarily fueled by the flourishing tourism industry. The augmentation of oil production and proactive reforms have also bolstered economic vitality in industries unrelated to oil. These elements together bolster Dubai's economic advancement and assist in counterbalancing the effects of inflation.

Unlike other significant economies such as the United States, Brazil, Singapore, and Turkey, which have faced challenges with inflation, Dubai has experienced comparatively better outcomes amidst inflationary conditions. This can be mainly attributed to the fast-paced growth in both the oil and non-oil industries.

While it is undeniable that inflation has a positive impact on the prices of real estate properties, a thorough examination reveals an interesting connection. When we look at historical property prices and inflation data, we observe a fascinating pattern: the increase in property values consistently exceeds the inflation rates. As inflation erodes the buying power of consumers, we see a noticeable shift in priorities, with more people choosing to invest in rental properties rather than buying homes for their own use.

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Nevertheless, the changing dynamics of the property market in Dubai tell a different story. Despite the increasing prices of properties and higher interest rates, a new segment of renters are becoming homeowners to avoid the hassle of lease renewals and moving. Most importantly, these individuals aim to pay lower monthly mortgage payments compared to their monthly rental expenses. They see the advantage of owning a valuable asset that, once fully paid off, can provide significant capital appreciation. This asset can be used as a free place to live in, rented out for additional income, or sold for a substantial sum of money.

The UAE's enhanced visa rules, positive business atmosphere, and secure, high-class way of life all contribute to the impressive performance of the market. This in turn attracts more foreign buyers who want to settle in the Emirates and invest in its thriving economy. The issuance of numerous golden visas, as well as retirement and property-related visas, are drawing in more residents and investors. Dubai's projected population growth, across different income levels, is in line with its goal of reaching 5.8 million residents by 2040. This assures a continued demand for housing in the long run.

During times of global challenges and unrest, Dubai stands out and entices potential investors. Whether it's the Covid pandemic, conflicts, or financial troubles, when other nations face tough situations, Dubai remains a secure and opulent haven for investment. The ongoing high levels of worldwide inflation further showcase the emirate's ability to withstand such challenges and will continue to attract investment opportunities. Therefore, global inflation should be viewed as a positive prospect for the UAE, rather than a hindrance.

Posted: August 18, 2023, 6:00 PM