United Arab Emirates

UAE Residential Real Estate Market Analysis 2023

Lalaine C. Delmendo

The UAE’s property market continues to gather pace, supported by robust demand, healthy economic growth, and strong foreign interest.

Dubai’s all-residential property price index (RPPI) rose strongly by 9.53% y-o-y (4.14% inflation-adjusted) during 2022, at par with the previous year’s 9.25% increase, according to Reidin.com. On a quarterly basis, Dubai prices were up by 2.93% (1.69% inflation-adjusted) in Q4 2022.

Source: REIDIN

By property type:

  • Dubai’s apartment prices rose by 8.98% (3.61% inflation-adjusted) during 2022.
  • Villa prices increased sharply by 12.78% (7.22% inflation-adjusted) last year.

The average purchase price of apartments in Dubai was AED1,917,510 (US$522,127) in 2022, based on figures from Mortgage Finder. On the other hand, the average purchase price of villas stood at AED3,112,546 (US$847,528).

Abu Dhabi’s housing market growth is more subdued, with the all-residential property price index rising by just 1.46% (-3.54% inflation-adjusted) in 2022 from a year earlier. Over the same period:

  • Apartment sales prices in Abu Dhabi increased slightly by 0.91% (-4.06% inflation-adjusted).
  • Villa sales prices rose by 4.07% (-1.05% inflation-adjusted).

Demand is surging. During 2022, Dubai’s registered property sales transactions increased by a huge 44.7% y-o-y to 122,658. Likewise, the total value of transactions reached a record-high of AED 528 billion (US$143.8 billion), up by 76.5% from the prior year, according to a report released by a Dubai Media Office.

2022 also saw 80,216 investors registering 115,183 new real estate investments valued at AED 264.15 billion (US$71.93 billion) – an annual growth of 59.5% in volume and 78.4% in value.

“Dubai remains one of the world’s most attractive investment destinations due to its stable economy, strong financial fundamentals and ability to constantly find new opportunities for growth,” said Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of Dubai Executive Council.

“Moreover, global investors, institutions and businesses continue to have high confidence in Dubai’s economy due to its growing profile as one of the best metropolises to live and work, its exceptional infrastructure and supportive regulations,” he added.

The UAE economy grew by around 5.9% in 2022 from a year earlier, on the back of the strong expansion of the non-oil sector, according to the World Bank. This followed a modest growth of 3.8% in 2021 and a contraction of 4.8% in 2020.

The economy will likely expand by a more moderate, but still healthy pace of 4.1% this year, amidst global economic slowdown.

Positive outlook

The UAE housing market, and Dubai in particular, is expected to grow strongly in the coming years, supported by the government’s goal of establishing the emirate as one of the best real estate markets in the world.

“The emirate´s real estate sector has demonstrated its ability to sustain its rapid growth and enhance its attractiveness as an investment magnet. Driven by close cooperation between public and private stakeholders, the sector is set to achieve even greater growth in the future,” said Sultan Butti bin Mejren, Director General of Dubai Land Department.

“Early in 2023, we announced our Strategic Plan 2026, which charts a roadmap for establishing Dubai as one of the world´s best real estate markets by ensuring effective governance, promoting innovation, harnessing the latest technologies to develop new real estate solutions and creating a data-driven sector that promotes investment confidence,” he added.

Housing market cycle

From 2002 to 2008, Dubai’s property prices almost quadrupled, as Dubai became one of the world’s fastest growing cities. After March 2006, a deluge of foreign money boosted Dubai’s ambitions following the passage of the long-awaited foreign property ownership law.

UAE residential property price indices

Billions of dollars were spent on mega-projects including Jumeirah Garden City (estimated cost: US$95 billion), Dubailand (US$64 billion), The Lagoons (US$25 billion), Palm Jumeirah (US$14 billion), and The World (US$14 billion).

Europeans, including Russians, accounted for 20% of the buyers of all property categories. GCC, Arab nationals and UAE nationals made up 28%, Asians 40%, and Iranians 12%, according to figures from Global Realty Partners.

Then the global credit crunch hit at the end of 2008.

Transaction volumes plummeted. Almost half construction projects in the UAE, worth around AED1.1 trillion (US$300 billion), were either put on hold or cancelled.

As the economy returned to growth, halted construction projects were resumed. From January 2012 to end-2014 Dubai experienced skyrocketing house prices, averaging 21.5% annually. However, house price growth in Dubai slowed by end of 2014.

The housing market has been depressed since.

  • In 2015, Dubai’s all-residential property price index (RPPI) fell by 11%, and Abu Dhabi’s RPPI fell by 0.8%, according to Reidin.com.
  • In 2016, house prices fell by 0.4% in Dubai and by 3.7% in Abu Dhabi.
  • In 2017, house prices fell by 3.9% in Dubai and by 9% in Abu Dhabi.
  • In 2018, Dubai house prices dropped 8.6% while Abu Dhabi prices fell by 6.9%.
  • In 2019, Dubai house prices fell 6% while Abu Dhabi prices dropped 7.5%.
  • In 2020, Dubai house prices fell 7.1% while Abu Dhabi prices were down by 2%.

The enormous excess supply of apartments was pulling the market down. Other factors that contributed to the decline of the housing market in recent years:

  • the Federal Mortgage Cap, introduced in 2013, slowed residential price rises in Abu Dhabi and Dubai.
  • the implementation of 5% value added tax (VAT) in January 2018, which applies to home sales after three years of the project’s completion. Sales within three years of completion have 0% VAT rate.
  • the Dubai Land Department doubled property registration fees from 2% to 4% to dampen property demand.
  • the adverse impact of the Covid-19 pandemic to both the demand and supply side of the housing market.

The housing market started to recover in 2021, as activity slowly returns to its pre-pandemic levels. Dubai house prices rose by 9.25% while Abu Dhabi prices increased by 1.56%. House prices continued to rise in 2022, albeit at a slower pace.

Transactions surging; off-plan property demand still strong

Demand is surging. During 2022, Dubai’s registered property sales transactions increased by a huge 44.7% y-o-y to 122,658. Likewise, the total value of transactions reached a record-high of AED 528 billion (US$143.8 billion), up by 76.5% from the prior year, according to a report released by a Dubai Media Office.

UAE residential supply

“The UAE housing market is quickly evolving and gaining maturity,” said Mortgage Finder. “Dubai, in particular, is growing exponentially and continues to appeal to new residents through its unparalleled lifestyle, business-friendly environment, global connectivity and most recently, the new reforms in visa and residency laws.”

In the residential sector, the total number of purchase transactions for apartments and villas in Dubai soared by 63% to 84,731 units in 2022, following an 83% growth in 2021, according to Mortgage Finder. It was the highest ever recorded. Over the same period:

  • Ready residential sales transactions: 43,036 units, up by around 45% from a year ago.
  • Off-plan residential sales transactions: 41,695 units, up by about 87% y-o-y. Off-plan properties account for almost half of all residential sales transactions in Dubai.

Better terms for expats have been introduced

In 2019, a new system for long-term residence visas (Golden Visa) for foreign investors and professionals was put in place. It allows expats to live, work and study in the country without needing a national sponsor. They can also enjoy 100% ownership of their business. These visas will be issued for 5 or 10 years and will be renewed automatically.

Eligibility for a 10-year visa:

  • Investors with public investments of at least AED 10 million (US$2.72 million)
  • Persons with specialized talents, such as doctors, scientists, specialists, inventors, as well as creative individuals in the field of culture and art
  • Outstanding students

Eligibility for a 5-year visa:

  • Investors in a property in the UAE of a gross value of not less than AED 5 million (US$1.36 million). The amount invested in real estate must not be on loan basis and the property must be retained for at least 3 years.
  • Entrepreneurs with an existing project with a minimum capital of AED 500,000 (US$136,000)

In June 2021, a new 24x7 residency visa service was launched, allowing customers to connect with a service team and follow up on the status of their transactions at any time.

Then in 2022, the UAE government approved new conditions for getting a Golden Visa by investment, with reduced investment amount, no restrictions on the duration of stay in other countries, and an opportunity to buy off-plan properties. Said new rules came into force in October.

  • Purchase real estate in the UAE for AED 2 million (US$545,000) to get a 10-year Golden Visa. Another option is buying real estate for AED 750,000 (US$204,000) to obtain a 2-year residence visa.
  • Purchase real estate for AED 2 million (US$545,000) to get 5-year residence visa. Investors may also purchase a property for AED 750,000 (US$204,000) to get a 3-year residence permit.

Foreign ownership rules are now very liberal

Foreign ownership laws are now very liberal in UAE, particularly in Dubai and Abu Dhabi.

  • Foreign nationals are now allowed to buy freehold properties in designated areas in Dubai.
  • Gulf Cooperation Council (GCC) nationals are allowed freehold ownership anywhere in the Emirates.
  • Abu Dhabi allows foreigners to own property in designated investment zones on a freehold basis. This followed other market-boosting measures. In 2012, the government compelled public sector employees living outside Abu Dhabi to relocate within the emirate’s borders. Then in November 2013, the government cancelled a 5% cap on annual rent increases.

Most residential property buyers in Dubai and Abu Dhabi are UAE nationals, followed by Indians, Saudis, British, and Pakistanis.

Housing supply continues to rise

In Dubai, there were about 41,000 new residential completions in 2022, following completions of 44,000 units in 2021 and 40,000 units in 2020, according to figures released by JLL MENA in its 2022 UAE Real Estate Market Report. This brought the total housing stock in Dubai to 680,000 units by end-2022.

UAE residential supply

Completions in the past recent years have been among the highest ever recorded, mainly due to the Expo 2020.

In Abu Dhabi, around 6,000 units were added to the market last year, bringing the total housing stock to 279,000 units.

About 41,000 units are scheduled to enter the Dubai market this year while around 6,000 units are expected to be completed in Abu Dhabi, according to projections from JLL MENA.

There’s money to be made - rental yields in Dubai and Abu Dhabi are moderate to good

In Dubai, gross rental yields are good, averaging 7.2% in December 2022, up from 6.19% in the same period last year, according to Reidin.com. By property type:

  • Apartments: rental yields were 7.55% in December 2022, up from 6.44% a year earlier
  • Villas: yields increased to 5.92%, from 5.33% a year ago

In Abu Dhabi, gross rental yields were slightly lower than that of Dubai, but remain relatively good at an average of 6.37% in December 2022 – lower than the prior year’s 6.54%.

  • Apartments: gross rental yields stood at an average of 6.67%, slightly down from 6.83% a year earlier
  • Villas: rental yields were 5.46%, from 5.66% a year ago

A study conducted by the Global Property Guide showed that gross rental yields in Dubai range from 2.22% to 8.76%, with an emirate average of 6.61%, the difference stemming from the lower cost of the smaller apartments.

Yields in Dubai are good, but the days when Dubai generated stratospheric yields are gone. Also, this can be a volatile market. Home prices swing up and down frequently.

Rental yield returns in Abu Dhabi are similar to Dubai, ranging from 2.69% to 8.09% with an average of 5.48%, based on Global Property Guide figures.

The yield rate consistency remains the same in other emirates and cities as well. Raz al Khaimah yields range between 4.24% to 8.52%, Sharjah ranges between 3.64% and 4.30% and Ajman is between 4.07% and 8.67%.

Rents surging in Dubai, steady in Abu Dhabi

Rental rates of residential properties are surging in Dubai, but stayed more or less steady in Abu Dhabi, according to Reidin.com.

  • In Dubai, rental rates for all residential units were up by a whopping 26.88% in December 2022 from a year earlier. Rental rates for apartments surged by 27.14% y-o-y, while rents for villas increased 24.89% y-o-y over the same period.
  • In Abu Dhabi, the average rental rate for all residential units increased slightly by 1.01% y-o-y in December 2022. Over the same period, rental rates for apartments dropped 1.31%, while it increased by a meager 0.46% for villas.

UAE residential rental price index

This is in line with Asteco’s Q4 2022 Dubai Real Estate report, which showed that average apartment and villa rents in Dubai rose strongly by 19% and 23% y-o-y, respectively, in Q4 2022.

“Rental rates across all major asset classes are expected to increase further, particularly for quality properties and areas with limited new supply potential,” noted the Asteco report. “However, with more units expected for handover in 2023 and short-term rental properties being reverted back to annual leases, rental rate growth is expected to slow.”

Rents in specific high-end developments in Dubai in Q4 2022:

  • At the DIFC, a special economic zone in Dubai, rents ranged from AED 97,500 (US$26,549) per annum for one-bedroom apartments to AED 200,000 (US$54,459) for three-bedroom apartments.
  • In Downtown Dubai, home to the towering Burj Khalifa skyscraper, rents for one-bedroom apartments averaged AED 97,500 (US$26,549) per annum, while rents for three-bedroom apartments stood at AED 220,000 (US$59,905).
  • In Palm Jumeirah, the world’s largest man-made island, rents ranged from AED125,000 (US$34,037) per annum for one-bedroom apartments to AED205,000 (US$55,820) for three-bedroom apartments.
  • In Sheikh Zayed Road, home to most of Dubai’s skyscrapers including the Emirates Towers, rents ranged from AED 90,000 (US$24,506) to AED 150,000 (US$40,844) per annum.

UAE dubai average apartments rents

In Abu Dhabi, the apartment rental market was relatively stable in 2022, with average rents increasing marginally by 1% to 2%, according to Asteco’s Q4 2022 Abu Dhabi Real Estate report.

Rents for high-end properties in Abu Dhabi over the same period:

  • In Central Abu Dhabi, annual rents for one-bedroom apartments averaged AED 58,000 (US$15,793); two-bedroom apartments for AED 90,000 (US$24,506); and three-bedroom apartments for AED 128,000 (US$34,854).
  • In Corniche, annual rents ranged from AED 65,000 (US$17,699) for one-bedroom apartments to AED 138,000 (US$37,577) for three-bedroom apartments.
  • In Al Khalidya/Al Bateen, annual rents ranged from AED 74,000 (US$20,150) for one-bedroom apartments to AED 145,000 (US$39,483) for three-bedroom apartments.
  • In Al Raha Beach, annual rents were from AED 73,000 (US$19,877) for one-bedroom apartments to AED 160,000 (US$43,567) for a three-bedroom apartments.
  • At the Marina Square, one-bedroom apartments were rented for AED 60,000 (US$16,338) per year, and three-bedroom apartments for AED 128,000 (US$34,854).

UAE abu dhabi average apartment rents

Rental laws

The Real Estate Regulatory Agency (RERA) is the regulatory branch of the Dubai Land Department (DLD) that is in charge of implementing tenancy rules and regulating the relationship between the landlord and tenant. The four main tenancy laws in Dubai include:

  • Law No. 26 of 2007: regulates the relationship between landlords and tenants in Dubai
  • Law No. 33 of 2008: amended certain provisions of Law No. 26
  • Decree No. 26 of 2013: established the Rent Disputes Settlement Centre (RDSC), which supervises all types of rental disputes in Dubai
  • Decree No. 43 of 2013: governs rent increases in Dubai

Since December 2013 rent caps have been imposed by Dubai Decree No. 43/2013 (the "New Decree"). The rent cap also applies to special development areas and free zones, including the Dubai International Financial Centre (DIFC).

In 2023, rent increases are as follows:

CURRENT RENTAL LAW

Rental rates Allowable rent increase
If existing rent is:  
Equal to or 10% below the average market rental rate Nil
11% to 20% below the average market rental rate 5%
21% to 30% below the average market rental rate 10%
31% to 40% below the average market rental rate 15%
More than 40% below the average market rental rate 20%

However, landlords can increase rents only at the time of renewal of lease. The DLD requires landlords to provide tenant with at least 90-day notice before the rent increase.

Recently, a new draft law was proposed that will freeze rents in Dubai for three years, but it has never come to fruition.

In Abu Dhabi, the 5% annual rent cap remains in force, which has been reinstated on December 2016 after it had been abolished in 2013. Further in October 2018, the Abu Dhabi Judicial Department issued new rules that will make it easier for landlords to evict tenants. The new rules allow landlords with lease contracts registered with Abu Dhabi Municipality to approach the Enforcement Department directly to claim outstanding rent and repossess their property. Previously, landlords had to go through a legal process to evict a tenant, which typically takes up to 6 months.

Abu Dhabi has also strengthened the protection of off-plan buyers. Its recent real estate law (No. 3 of 2015) appoints Abu Dhabi’s Department of Municipal Affairs (DMA) as real estate regulator, performing the same functions as Dubai’s RERA. The reforms, as outlined by The National, include:

  • A central government database/register for all property projects in Abu Dhabi, including off-plan sales;
  • Developers are only allowed to charge DMA-approved administrative fees, and are barred from collecting registration fees from investors;
  • Rules are laid down for the creation of owners’ associations;
  • Developers are only allowed to sell off-plan units if they own a real estate right over the project land. A “disclosure statement” is also required, providing information on the development to home buyers.
  • Developers marketing off-plan units are required to open an escrow account.
  • In case of “substantial prejudice”, off-plan buyers can terminate their purchase.
  • Developers will be fined by the DMA if their projects are delayed by more than six months. If there is a significant delay, the new law allows for cancellation of projects or the appointment of anew developer.
  • A 10-year liability period for developers regarding structural building defects

Key interest rate continues to increase

In March 2023, the Central Bank of the UAE raised its key overnight deposit facility by another 25 basis points to 4.9%, following a similar move by the US Federal Reserve. This was the central bank’s fourth consecutive rate hike in the past five months.

The UAE’s base rate for overnight deposits is linked to the US Fed’s interest on excess reserves (IOER).

UAE interest rates

Mortgage interest rates in Dubai have, in the past, followed key US Fed rates, because the dirham (AED) is pegged to the US dollar at AED3.67 = US$1. Some banks offer mortgage loans to both nationals and expatriates.

However, due to the continuous increase in key interest rates to tame inflation, mortgage owners with variable rates in the emirates have seen their mortgage interest rates surge from 2% to 3% annually to 6% t0 9%. Some homeowners are even paying more than 10% mortgage rates.

Mortgage market continues to grow

Despite a surge in interest rates, the mortgage market continues to expand. During 2022, there were 16,700 mortgage transactions in Dubai – a record-high volume for the emirate, based on figures from the DLD.

“We continue to see growth in the number of mortgage inquiries which is a clear indicator that the market momentum remains strong,” said Mohamad Kaswani of Mortgage Finder. “Thanks to its continued transformation, the nation continues to attract people from all over the world to relocate while also maintaining a strong appeal for ex-pats living in the UAE to consider home ownership.”

Mortgage rules were introduced in October 2013 to regulate the market:

UAE FEDERAL MORTGAGE CAPS (MAXIMUM LOAN-TO-VALUE RATIO)

  First home (Owner-occupier) Second home or investment property Off-plan purchase
NATIONALS
Property valued under AED5 million (US$1.36 million) 80% 65% 50%
Property valued over AED5 million (US$1.36 million) 70% 65% 50%
EXPATRIATES
Property valued under AED5 million (US$1.36 million) 75% 60% 50%
Property valued over AED5 million (US$1.36 million) 65% 60% 50%
Source: UAE Central Bank, Cluttons

In March 2020, LTV ratios on mortgages for first-time homebuyers were raised by 5%, to alleviate the economic conditions caused by the COVID-19 pandemic.

More fixed-rate mortgage products have been introduced in the last decade, and “Fee free” products have allowed borrowers to switch to a new lender at a lower cost since the last quarter of 2010.

Crude oil prices falling again, Saudi-UAE spat clouds outlook

Brent oil prices reached a decade-high of US$120.08 per barrel in June 2022, amidst the ongoing Russian invasion of Ukraine. However, the prospect is now gloomy amidst the growing rift between Saudi Arabia and UAE.

Uae crude oil

In February 2023, Brent oil prices declined by 13.6% to an average of US$82.71 per barrel, from U$95.76 per barrel a year earlier, according to the World Bank.

With increasing oil prices in 2021, UAE pushed for increased oil production within the OPEC+, so that it can invest in its diversification plan before oil demand dries up. The country is upset about the low baseline from which its production is calculated. Abu Dhabi has invested billions of dollars in recent years to increase its production capacity.

However Saudi Arabia, OPEC’s de facto leader, has refused the said concession, causing a rare public clash between the two allies. Neither side appears ready to budge, clouding the outlook for oil prices. Recently, the UAE is reportedly contemplating leaving the powerful cartel.

UAE’s modest economic growth

The UAE economy grew by around 5.9% in 2022 from a year earlier, on the back of the strong expansion of the non-oil sector, according to the World Bank. This followed a modest growth of 3.8% in 2021 and a contraction of 4.8% in 2020.

Economic growth was estimated at a more moderate pace of 4.1% this year and 2.3% in 2024, amidst lower oil prices, lower expansion in tourism, and reduced investments.

UAE gdp inflation

“Looking ahead, the UAE economic outlook remains positive, supported by domestic activity. We expect non-hydrocarbon growth to be around 4 percent in 2023 and to accelerate over the medium-term with the implementation of ongoing reforms,” said Mr. Ali Al-Eyd of the International Monetary Fund (IMF). “Nevertheless, the outlook is subject to significant external uncertainties, including the impacts of global economic and financial headwinds, geopolitical developments, and the recently announced OPEC+ production cuts.”

Abu Dhabi remains very dependent on oil revenues while Dubai is more focused on trade, travel and tourism.

Inflation eased to 4.58% in Q1 2023, as compared to 6.77% in Q2 2022, according to the National Bureau of Statistics. Nationwide inflation averaged just 1.1% in 2011-2021 before rising to 5.22% in 2022, based on IMF figures.


Sources:

United Arab Emirates - More data and information