The big predictions for the Dubai real estate market in 2023 mostly hit the long-term rental and transactional (buy/sell) market, however we have taken the key trends and put together our thoughts on the impact of these on the short-let market. Check it out below.
Dubai’s property prices have been on the rise in recent years, but 2023 may see only a modest increase in prices, slowing the growth of the market. Zoom Property Insights predicts a 5% growth in the market by the end of the year, compared to 11% in 2022.
This slowdown is mainly due to the rise in interest rates. The Central Bank of the UAE raised the base rate for Overnight Deposit Fact (ODF) from 4.4% to 4.65% on 2 February 2023. Although the impact on the property market is expected to be minimal, since about 70% of property transactions are conducted in cash, it may affect the mortgage industry.
Impact on short-let: This mainly impacts our first-time property investors, looking to start their journey in the short-let market. With high mortgage rates, it could be tricky – although not impossible – to get on the investment property ladder this year. However, having said that, dependent on budget, investors could look into lower cost developments. There is a lot of stock coming onto the Dubai market this year (approx. 47,000 units), with off-plan and resale options, and one beds (which take up 40% of AirDXB stock) prove popular with guests. Some first-time investors may wish to wait until 2024, however with some adjustment to budgets & expectations, others could very well proceed this year. For those with their mortgages pre-agreed or cash buyers, the general slowdown is good news.
According to Arabian Business, the Dubai rental market saw a 27% increase in 2022, with apartments and villas seeing a 27% and 24.5% increase in average rent, respectively. With the increase in rent and the cost of living as a whole, there has been a higher number of rental agreement renewals as people prefer to extend their leases instead of relocating. This trend is expected to continue in 2023.
Impact on short-let: The migration of homeowners from short-let to the long-term rental market will slow. Dare we say it, some homeowners who wish to take advantage of short-let benefits later down the line, may not have the flexibility to do so due to commitments/contracts to their long-term tenants. In the meantime, this migration is benefitting the short-term market massively, with less available stock driving up the average nightly rate, creating higher returns for our homeowners.
In 2020 and 2021, the villa segment dominated Dubai’s property market, with an average annual growth of 20%. The apartment market, on the other hand, struggled to reach double-digit growth. However, the trend is changing in 2023, with Zoom Property Insights reporting that 67,700 apartments were sold in 2022, with the average price reaching 1.2 million. This represents a 71.1% increase in transactions and a 20.9% increase in average price compared to 2021.
This growth shows that buyers are once again interested in the apartment sector, possibly due to the launch of new developments offering state-of-the-art apartments at affordable prices. The Zeitgeist 2022 Report from PropertyFinder stated that off-plan transactions value made up 44% of all transactions in 2022, up from 40% in 2021 as measured by volume (both apartments & villas). We are also expecting 45,000 new apartments and 7,000 new villas onto the Dubai residential market (statista).
Impact on short-let: New developments = new opportunities for investment properties, particularly in the short-let market where modern finishings sell. Of course, you can’t compete with space or location – something a lot of new builds lack – and therefore updated “older” developments still have that selling power. Speak to our interiors team at Furnished for insights on how minor adjustments can make a big impact.
With the rising cost of living in Dubai, buyers and tenants are focusing on affordable communities. International City, Liwan, and Discovery Gardens are popular among buyers, with studio apartments in International City costing an average of AED 232,000, AED 324,000 for 1-bed, and AED 676,000 for 2-bed apartments.
Other affordable rental areas in Dubai include Dubai Silicon Oasis, Bur Dubai, Discovery Gardens, and Dubai Sports City.
Impact on short-let: Properties in more central locations, such as Dubai Marina, The Palm, Emaar Beachfront etc, will become less popular with UAE residents and long-term tenants, as they move further out of town to grab a good deal. With big competition to secure long-term tenants willing to pay (far) higher than average rents, short-term letting will be a more viable option for homeowners in these popular tourist areas to maximize their profits.
*Disclaimer: these are predictions and therefore are not factual, however we do tend to know what we are talking about. Contact us to discuss your investment opportunities for the short-let market.