Dubai’s residential property market supply has been lagging behind population growth with the affordable segment also witnessing shortage after luxury in certain areas of the emirate.
Industry executives say that supply will not be able to keep pace with the demand even in 2024 due to the high influx of foreigners and residents increasingly turning buyers amidst rising rentals.
Around 50,000 new residential units were handed over in Dubai in 2023, which is nearly half of the population increase.
According to Dubai Statistics Center data, the emirate’s population grew by over 100,000 in 2023 to more than 3.65 million by mid-December, resulting in very high demand for residential properties.
This was reflected in the Dubai Land Department’s 9-month data which showed the number of transactions jumped by 33.8 per cent to 116,116 worth Dh429 billion.
There are areas of under-supply which have contributed to price growth in recent years, e.g. the villa market, waterfront locations, and mature, established communities which are now ‘built out’ with little or no land left for further development. In these segments, demand often exceeds supply and drives price growth.
“Strong economic fundamentals, positive sentiment and inbound population growth drive demand. Tenants have increasingly moved into home ownership instead of paying rising rents,” said ValuStrat analysts.
In the first half of the year, real estate consultancy ValuStrat said there was a high demand and a supply shortage for larger homes in prime locations. However, more recently, the demand trend has shifted towards more affordable areas as buyers seek lower prices and opportunities for possible future investment appreciation. These areas include Discovery Gardens, Dubai Silicon Oasis, Jumeirah Village, Business Bay, The Greens and Dubai Production City.
“To keep up with the recent population growth, Dubai needs 50 per cent more new properties entering the market every year. We have seen a significant demand for homes in central, prime, and established residential communities. However, due to a shortage of available land, constructing new residential properties in these areas is not feasible, resulting in most new residential projects and units coming to market within up-and-coming suburbs such as Dubai South, Jumeirah Village Circle (JVC), Arjan and Townsquare,” said Paul Kelly, operations director at Allsopp & Allsopp.
Undersupply in coming years
New residential property market supply usually takes years to be delivered from concept to handover – planning, finance, construction, etc.
“Post-Covid-19, developers also had to deal with supply chain challenges and rising construction costs. Some of the delayed handover periods seen in recent new home launches suggest that developers have sought to quickly bring off-plan stock to market to benefit from strong buyer demand whilst also having to balance multiple projects in their completion schedules,” said ValuStrat.
Allsopp & Allsopp sees the handover of residential units in 2024 stands at 66,902. “I don’t expect we will hit that figure exactly, but we should be there or thereabouts.”
At the moment, Kelly doesn’t see supply can keep pace with the demand in 2024 and the near future.
“Although developers are responding to the current undersupply in the market by releasing 100,000 new off-plan units for sale in 2023, these units will not be handed over to end-users until 2025-2027. As a result, we predict that the undersupply of residential properties in Dubai will remain for the next 24-36 months,” he added.
Luxury segment shortage to dominate
Luxury properties which have seen higher demand than affordable and middle segments, will continue to face the largest shortage of new residential units coming into the market.
“Take any prime/luxury location in Dubai; the story is the same: there is simply no ready/available land to develop any new residential projects and any kind of scale to satisfy the current level of demand,” Kelly said, adding that in recent years, this impact has also been felt across more established premium residential communities such as Jumeirah Golf Estates and Arabian Ranches (where land is at a premium), and signs now point towards mid-market segments also running low on available land for new, large-scale residential construction projects.
In recent years, Dubai has become an attractive option for new residents and businesses due to various short-term socio-economic factors. Beyond this, Dubai’s 2040 master plan is a key driver for both supply and demand across the real estate market.
“With Dubai committed to increasing its current population of 3.6 million to 7.8 million residents by 2040, there is a clear need for large-scale commercial and residential properties to be developed year-on-year for the foreseeable future to keep up with the demands of the population growth,” Kelly added.