Given the decline in rental prices as Dubai’s real estate market peaked in the middle of 2017, several analysts expressed concerns about the continuing announcement of new projects by developers, which presumably paved the way for considerable over-supply and a worse price drop.

Side of supply: Projections against reality

Initial forecasts based on developers’ accounts suggest a total of 104,912 units (34,127 and 70,785 respectively) for 2018 and 2021. In contrast, newly reviewed statistics point to significant building delays, with implementation rates currently predicted at 79 percent for 2017 and 44 percent for 2018. (source: REIDIN). Current handover figures for 2019 are not available to date. While REIDIN will thus supply 31,266 units in 2019, Jones Lang Lassalle, an immobilisation analyst, anticipates an even lower number of 20,000 units will come out in 2018.

These statistics indicate that, in only two years, the variation between projection and delivery reality might summarise a wide gap of 46,530 or more units (JLL) between predicted and current deliveries, significantly alleviating the concerns stated earlier.

Demand Side

Demand for housing units is determined by the population trend concerning occupied housing units in combination with the population. The second parameter was 4.5 in 2008, falling from 3.9 in 2016, suggesting that the 1-meter population now occupies 256,000 units compared to 222,000 units in 2008. Although there has been a temporary reverse trend since 2011, it is quite likely that this parameter will not increase to its prior heights, especially given the vast majority of the units in the pipeline are now much smaller, more affordable apartments.

Based on the long-term population growth CAGR, which is 6.5 percent (Dr Elessawy, UAE University), we may conclude that housing demand will rise to 48,750 units in 2020. (net inflow of 195,000 residents at a rate of 4 occupants per unit). Given REIDIN (31,266 delivery units) and JLL (22,000 units), this would already lead to undersupply in 2018.

Furthermore, the occupancy rate in Dubai now stands at 88.4%, which is consistent with the historical average and thus provides only a small buffer for excessive demand.

In a more cautious light, it should be emphasised that Dubai, in particular, is an exceedingly open economy, which relies mainly on foreign demand, particularly in the areas of trade, building and tourism. Investors have to be mindful of the potential to disrupt the course of Dubai’s economic growth, having immediate negative impacts on employment markets, population figures, and hence housing demand, due to the collapsing global growth or financial crisis, the strong recession, or regional political troubles. It is also essential to recall that the figures above for migration include the working sector, whose members are accommodated in staff accommodation not covered by this article.

Conclusion

Because of the overall economic downturn since the middle of 2020, rental prices have gradually decreased throughout all quality segments and sites in Dubai.

As lower housing in general and rents in particular lead to higher demand – both abroad and in neighbouring emirates in particular – we will probably witness an increase in Dubai population figures shortly compared to the longer-term norm.

Moreover, increased public spending in the run-up to Expo 2020, continued oil price recovery, and devaluations of significant currencies – notably the Pound and Euro – of the US dollar-stocked AED are generating additional stimuli and will drive considerable external demand and economic activity, particularly in the UAE and in Dubai.

In light of these facts, the International Monetary Fund expects that the US economy will increase by 3.4% in 2019, a value which will probably be exceeded by Dubai’s economically diverse hub and hotspot. This is further supported by a reactivated recruiting feeling in the UAE business sector, where 86% of respondents claim to employ new employees during the next 12 months.

So, the probability of a further and sustained slump in Dubai’s housing market looks to be small given the absence of significant external events and the available statistics on supply and demand.