UAE Property Market Roundup

The Dubai economy has been on an upward trajectory for many months, and with high oil prices further strengthening investor sentiment, the property market will reap the rewards of this for the foreseeable future. 

While experts believe that moderate increases in prices and rents are on the horizon, this momentum will only encourage developers to launch more projects. In turn, this will continue to push up the wider property market, especially after expanding by 3.5% in 2021 alone. 

According to analysts at S&P Global Ratings, developers’ revenue growth is expected to expand in the next four to five years, fuelled by a flurry of residential property and new developments. 

Tatjana Lescova and Sapna Jagtiani, analysts at S&P Global Ratings said: “High oil prices will remain an important positive factor for investor sentiment in the GCC region. Pressure on profitability will ease and S&P adjusted debt to Ebitda metrics will improve. 

“While new projects that are working capital-intensive will limit this deleveraging for some, interest rate hikes will affect capitalisation rates and weaken loan to value ratios.”

Following the US Federal Reserve’s decision to push up key rates in line with inflation, central banks in the UAE, Saudi Arabia, Bahrain and Kuwait have increased their benchmark interest rates.

With inflation in the world’s largest economy now at a 40-year high, these central banks have followed suit due to their currency peg to the UK dollar. This has seen all interest rates in key locations across the Middle East reach between 1.25-1.75%. 

Much like many economies across the world, the US experienced record-lows during the height of the pandemic. However, this rise in key rates is just a glimpse of what is yet to come. With the UAE expected to reflect the future rises in US key rates, S&P Global Ratings believes that this will increase the profitability of UAE lenders. 

“On average, banks in the UAE will benefit,” S&P said. “We calculate a 15% increase in net income and 1.4 percentage-point rise in return on equity for every 100-basis-points increase.”

Although these rises will be beneficial for the UAE economy, it will inevitably make lending more expensive for investors. With higher mortgage rates and less accessibility, alternative markets will only become more appealing. UK property has always been an attractive investment asset and with 20% price growth forecasted by 2026, it’s set to become even more popular. 

During 2021, many homeowners and prospective buyers took advantage of the favourable lending environment to purchase more premium homes. As a result of this, Dubai has been ranked top for the biggest increase in luxury home prices across these 12 months. 

In Knight Frank’s latest Wealth Report, Dubai dominated the ranks for luxury property price growth, followed closely by Moscow and several US destinations. Dubai’s luxury homes reported 44% increases in values, fuelled by the momentum from the second half of 2020.

With multiple deals in the Palm valued at over Dh100 million, it’s no surprise that January and February figures reflected this ongoing demand. The continued activity across the luxury homes market has the potential to catalyse more spikes in the coming months, especially if more Russian investment is poured into the market. 

According to Knight Frank, this is a very real possibility. Dubai, along with Miami, is on track to see more price gains, but predominantly in the top end of the market. Developments such as Emaar’s Dubai Hills Estate, Sobha’s Hartland and Dubai Holding are just a few projects that will continue to bolster the market as a whole. 

“Far from running out of steam, this year we will see the luxury housing boom endure,” said Liam Bailey, global Head of Research at Knight Frank. “Dubai, Miami and Zurich lead our 2022 forecast, with prime prices expected to end the year between 10- and 12 percent higher.”

The UK has always been considered a ‘safe’ investment location for overseas investors. In comparison to the likes of Hong Kong and Dubai, the market is not only relatively stable, but it also offers competitive returns. The resilience of the UK market has only increased the Middle East’s appetite for commercial property.

While the pandemic caused a temporary ‘city centre exodus’ across the UK, the return to the office is drawing more wealthy investors to the market. It’s expected that in 2022 alone, more than £1.5 billion worth of investment will be injected into UK office buildings from the Middle East. 

This increased investment in the UK’s commercial property market will be 33% higher than it was last year, with the potential for this number to increase even more. Alex James, head of private client commercial advisory at Knight Frank, has said that the consultancy is tracking £4.17bn of active central London office requirements from Middle East investors. 

“There’s already been a huge uptick this year in Middle East interest and inquiries have gone through the roof for UK investment opportunities over the past two months as people fly again – you can definitely feel the momentum,” said Mr James.