2022 in review: Reforms, Ukraine war drive boost in UAE’s real estate market

The United Arab Emirates' real estate market saw a gainful year despite a global slowdown, benefiting from a series of reforms and geopolitical events, including the Ukraine war, with some segments anticipated to lead growth rates globally in 2023.

In the third quarter of this year, global commercial real estate returns turned negative for the first time since the start of the COVID-19 pandemic in the second quarter of 2020, according to US finance company Morgan Stanley Capital International.

While Europe is facing its worst performance since the 2008 global financial crisis, the UAE broke some personal bests. 

In November, Dubai real estate surpassed its highest sales transactions since 2011, making more than 10,000 transactions worth $8.3 billion that month, according to Dubai-based real estate group Property Finder.

This coincided with a 7.5% increase in annual contract rates year-on-year.

Prime residential prices in Dubai’s affluent neighborhoods of The Palm Jumeirah, Emirates Hills and Jumeirah Bay Island are expected to have the strongest price growth globally in 2023, according to real estate consultants Knight Frank Middle East.

Growth is also taking place in the area of affordable housing. Abu Dhabi Capital Group-owned developer Imkan is investing in a $4.03 billion residential project to house an expected 5,000 people made up of both middle-income earners and the ultra-rich. 

Recipe for investment

The UAE has taken deliberate steps recently to position itself as a safe haven for investment with a variety of measures to build confidence in the form of foreign direct investment (FDI).

The country first implemented long-term residency visas, or golden visas, in 2019, which allows expats to live and work in the UAE without the need for a national sponsor, retire and own 100% of mainland businesses.

Abu Dhabi was ranked the best city in the world in 2021 for its pandemic response and vaccination roll-out, according to London-based advanced analytics company Deep Knowledge Group.

Dubai hosted the World Expo last year, which saw the number of hotels in the emirate increase from 711 to 759 from January of 2021 to 2022, reported the Dubai Chamber of Commerce.

A host of new economic reforms is easing growth for small and family-owned businesses, including a law last month that aims to turn 200 of the latter into major companies by 2030, with a more than $40.84 billion market value and yearly revenues of $5 billion.

Real (e)state of war

The combined effect of all this is increasing the appeal of the Emirati market to foreign investors that, combined with a neutral stance on global politics, is welcoming Russian wealth amid Western economic sanctions.

“The Ukraine and Russia war was very beneficial to the real estate market here. People have pointed to the UAE as a safe haven, a place where they can be welcomed,” said Izzat Dajani, the CEO of IMCapital Partners, a MENA-T investment management and corporate advisory company based in Dubai, who told Al-Monitor that the demographics of FDI are changing in the UAE. 

“Historically, there was a lot of money coming from the Gulf, mostly from Saudi Arabia and Qatar with some from Jordan, Eastern Europe, and Russia,” he said anecdotally, explaining the difficulty of acquiring FDI data for the UAE.

But more recently, he argued that such influx has dissipated.

"I don't think there has been much money coming from Saudi or from Qatar [like before]. I think most of the investment actually came from Russia, Ukraine and India, and then you also have some from countries like Azerbaijan and China,” Dajani, who is also a senior expert counsel at an international law firm, added.

The devaluation of the euro, said Dajani, has resulted in less UAE real estate investment from European countries in comparison and from other countries with currencies facing the same issue. 

He noted, however, that as wars eventually end, a correction course in the real estate market and the FDI that follows it may set in. Dajani still anticipated that the overall positive sentiment will remain given the UAE’s strong leadership outlook.

“One of the best avenues to stimulate FDI is through privatization of successful public companies,” said Dajani, highlighting the recent UAE IPOs raised this year. In 2022, the Emirates witnessed the highest GCC offering amount of $9.7 billion raised through five IPOs. 

Economic outlook

The UAE residential property market softened in 2014 and faced an oversupply due to a three-year oil price slump, according to Mordor Intelligence, and again more recently as a result of the global pandemic. But it’s recovering as people are increasingly working and learning remotely at home and seeking larger spaces.

Global inflation and interest rates have increased, also in the UAE, directly impacting real estate prices, mortgages and FDI alike, along with affordability that particularly affects middle-income renters and buyers. The luxury real estate sector for high-net-worth individuals and entities has remained more resilient. 

Property prices in Dubai are expected to rise at a slower pace, according to a September poll by Reuters, which stated that in order for Dubai housing to be deemed affordable, average housing prices would need to fall between 5% and 20%, according to Asteco Property Management, Deloitte, Property Monitor, Morgan’s International Realty and ValuStrat.

Over the span of a year until November 2022, Dubai residential market prices rose by 9.5% with apartment and villa prices becoming 9% and 12.7% higher, respectively, according to Coldwell Banker Richard Ellis (CBRE), a global commercial real estate services and investment organization.

“But for the first time, we’re going into what we classify as a global slowdown rather than a global downturn without a huge amount of stock,” said Taimur Khan, head of research at CBRE, as a result of increasing costs to finance and more. 

“In the last two slowdowns, we have gone in there with a great amount of vacancy, a significant amount of stock coming online and just empty retail and office spaces. We don't have that this time,” he told Al-Monitor. “We’re behind the curve on development now.”

With demand as high as it is, Khan said that increasing the volume of needed development projects is critical to the UAE’s correction strategy and growth.

“There’s quite a lot of development going on at the top end of the market, or the prime end of the market where you see new developments launched quite regularly. But affordable stock is very key, which a lack of can pose a challenge to future issues in terms of growth,” he said, especially welcoming small- and medium-sized business enterprise owners and employees who are essential to economic expansion.

Khan believes that the UAE is cognizant of this, with easier living projects such as Dubai’s 20 Minutes City, a transportation infrastructure project that aims by 2040 to allow at least 55% of residents to reach mass transit stations within 800 meters of their homes and fulfill their daily needs.