Investors will need to pick and choose through a new wave of off-plan launches
As Dubai’s real estate market continues to capture global attention, questions emerge about its growth trajectory.
Will the growth continue? What opportunities – and risks – lie ahead? We draw upon extensive data from DXBInteract.com to examine the value, volume, and median price per square foot for residential apartments in Dubai from 2009-23.
Offplan vs. ready properties
- Sales values for off-plan homes increased from Dh47 billion in 2009 to Dh83 billion in 2023, a 76 percent increase or an average yearly gain of 5.8 percent.
- Sales values of ready units escalated quite dramatically, from Dh4.4 billion to Dh42 billion, a whopping 854 percent over 13 years. That’s 65 percent on average annually. This reflects a realistic trend, as these properties are often resold multiple times.
The slower yearly growth in off-plan sales can be attributed to a lack of new launches between 2010-12 and a softer market from 2015-20. However, a robust increase in off-plan projects has been observed since 2021.
Sales volume went from 35,800 in 2009 to 36,600 units so far this year, surpassing the previous peak 13 years ago. Demand remains strong, influenced by market dynamics and regulatory frameworks that were not in place in 2009. The share of transactions is now spread across a greater number of developers and projects.
Ready properties saw a sales volume of 17,300 in 2009 and 25,700 homes so far in 2023, indicating a 0.6 percent average yearly increase. A steady uptick in sales volume indicates a mature market. As long as demand for ready properties exists, off-plan projects will continue to attract buyers.
Risks and opportunities
Supply surge: A rapid influx of off-plan projects could intensify competition among developers, leading to longer payment plans or decreased prices.
Investor Expectations: Those who own under-construction properties anticipate high profits upon completion, hinging on original purchase prices and continuous market growth.
Market price discrepancy
There is an emerging gap between developer prices and resale market prices for off-plan and ready properties. For off-plan properties, the average price rose from Dh1,004 psf in 2012 to Dh1,825 this year, which is 7.4 percent per year.
For ready properties, the price rise is from Dh858 psf in 2012 to Dh1,136 in 2023, at 2.9 percent per year.
The spike in off-plan prices can be attributed to the proliferation of luxury projects. Given the external conditions, an annual increase of 7.4 percent for off-plan and 2.9 percent for ready seems reasonable.
Our data suggests that the ratio of secondary sales of off-plan units dropped from 34 percent in 2022 to 15 percent in 2023, which shows:
- Many owners of properties under construction have resold during 2022 as they bought at lower prices and, hence, cashed out.
- With the supply of new off-plan projects rising, the dominance of marketing channels by developers has caused a slowdown in the resale market for properties under construction.
- Investors shifted their attention to buying from developers rather than in the secondary market, which also contributed to the rise of primary market transactions.
While the Dubai real estate market shows signs of growth sustainability, potential risks stemming from oversupply and investor expectations must not be overlooked. The data suggests a predominantly healthy market, driven by end-user demand, but prudent decision-making will be key to navigating the future landscape.