- The city is less exposed to interest rate increases because of the high prevalence of cash buyers
Real estate in Dubai enjoyed another bumper year in 2022, breaking all transaction records and setting new highs for prices in the luxury sector.
But while brokers have been celebrating at parties across Dubai last December, the story is very different for much of the rest of the world.
Reuters reported on January 2023 house prices are expected to fall by 12 per cent in the US in 2023, while the UK looks even bleaker, with Bloomberg reporting that prices could fall as much as 30 per cent by 2024.
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The juxtaposition between these headlines and those in the UAE about the booming housing market is stark.
But as global markets slow down and enter recession, how long can Dubai real estate buck the trend?
Dubai is a very different proposition to the real estate market’s 2009 downturn.
And by understanding what is driving our market and the slowdown elsewhere, we can start to expect to read a different script this time for Dubai.
Global real estate markets did well during Covid as the value we all placed on homes as somewhere we not only lived, but also worked, exercised and educated, skyrocketed.
Flexible working allowed for the migration of populations out of cities and into larger, rural properties.
But those good times hit the skids in 2022 as inflation, and the resulting higher interest rates, became a reality for the first time in a generation.
Interest rates rose from near zero in January to more than 4 per cent by the close of the year, affecting buyers’ affordability.
Higher interest rates have never been good news for the real estate market and these rate increases are the main cause for the property slowdown seen across the US and Europe in particular.
While higher interest rates in the West are having a devastating effect on real estate markets, Dubai is far less exposed to interest rate increases because of the high prevalence of cash buyers and also because it benefits from higher oil prices, currently one of the key drivers of global inflation.
Cash buyers in the US account for about 22 per cent, according to the National Association of Realtors. In the UK, 31 per cent of property purchases are made with cash.
In the UAE, cash buyers represent more than 70 per cent of purchases on average, largely due to the international nature of the market, according to Better Homes’ data.
So, while we have seen higher interest rates having a cooling effect on rising prices, the market here so far has taken these increases in its stride and transaction volumes have not been affected.
Looking ahead to 2023, there is cause to believe the speed of rate increases is abating. If the US goes into recession next year, we could expect to see some of those rises reversed into the back end of the year.