Why Dubai housing supply may not fully meet pent-up demand this summer

The summer season in Dubai is often relatively slow for real estate professionals. But not this time around.

Given the influx of investors due to geo-political instability and other global economic factors, and considering the significant rebound in population growth as a result of the city’s pandemic resilience and enabling government policies, housing supply in Dubai may struggle to meet pent-up demand during the summer of 2022.

Housing stock

Currently, Dubai has over 660,000 residential units and a population exceeding 3.5 million.

Average household size

So far in 2022, the average household size in Dubai is over 5.3 people compared to the OECD average of 2.6 persons, pointing to undersupply in the residential real estate market.

In 2015, the average household size in Dubai was 4.2, indicating an expanding average household size and thus a widening gap between supply and demand.

To draw parallels between Dubai and other major cities, take New York City for example.

With a population of approximately 8.5 million people and 3.5 million housing units, New York City has an average household size of 2.4 persons per household.

Housing flow

About 40,000 additional housing units are expected to be delivered in Dubai by the end of this year.

This number is not likely to satisfy the growing need in the market, showing Dubai’s housing progress remains far short of demand.

To match the OECD average of 2.6 persons per household, Dubai housing inventory must be double its current size.

Investor influx

This year, the UAE is set to draw the largest number of high-net-worth individuals (HNWIs) on record.

Investors from Russia and the 11 other Commonwealth of Independent States (CIS) countries alone represent more than 20 percent of current potential homebuyers in Dubai, with an average ticket size ranging from AED 2.5 million for individuals and AED 25 million for HNWIs.

Dubai continues to capitalize on its long-standing reputation as a haven for HNWIs of all origins, expanding into a sprawling metropolis where cohesive communities continue to embrace people from over 200 nationalities living in perfect harmony.

Greater supply-demand imbalance in the luxury market

HNWIs are seeking luxury properties amid lack of supply in high-end units. Waterfront properties have always been appealing to investors, including Russians.

This is due to the high return and prime locations, which make properties more attractive to investors as well as homeowners. Emaar Beachfront, Bluewaters, Bvlgari Island, Dubai Marina and La Mer are some of the areas that Russian buyers and other HNWIs are currently interested in.

The demand for ready homes has gone up. At the same time, demand for off-plan real estate is the highest it has been in the past few years due to flexible payment plans.

Both ready and off-plan properties are in demand. It all depends on the customer’s needs and whether a buyer is looking for a place to live, use for holiday, rent out or resell.

A buyer seeking immediate returns would be more interested in ready properties.

Rent increase

Compared to the same period last year, the rate of rent increase since the beginning of this year has been higher.

Luxury housing is in massive shortage, and landlords are getting premium rents. Waterfront apartments, luxury villas and mansions have recorded the highest increase in rent so far. We have witnessed 30 percent to 35 percent increase in rent of luxury waterfront villas.

Areas that have recorded the highest increase in rent levels in Dubai since the beginning of this year include Palm Jumeirah, Bvlgari Island, and Dubai Hills Estate villas.

Rebound in population growth

Between December 2020 and April 2022, Dubai’s population increased by 100,000. With a government target of 5.8 million people by 2040, the physical expansion of the city -including real estate development – must accelerate.

People are flocking to the UAE for many reasons. The country’s economic stability, high level of connectivity to the world, low energy cost, happiness ministry and centers, and the government’s diversification strategy are all factors enticing investors and families to live here.

According to the Global Entrepreneurship Monitor’s 2022 report, the UAE has topped the list of best countries for entrepreneurs. In addition, Dubai in particular provides ample professional opportunities post-Expo.

Other expat-friendly policies contributing to the growing number of people relocating to the UAE include the ease of doing business, a low-tax environment, public safety, high-quality living, schooling and healthcare, and a new 10-year Golden Residence that will be granted to investors from September 2022 onwards.

Given the high levels of demand, the Dubai real estate market is currently at its best for developers and brokers. Nearly no promotions are needed to generate sales.

In fact, there is a shortage of staff, and demand continues to exceed supply, especially in the premium and luxury categories.