Dubai outperforms global prime residential market in 2022
Feb 22, 2023
Dubai outperforms global prime residential market in 2022 Dubai
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Abstract: Savills has ranked Dubai number one in its 2023 World City Quality Residential Index.

With a prime capital value of US$730 per square foot, Dubai remains one of the most attractive real estate markets in the world.


According to a new report, Dubai outperformed the prime global residential market in 2022 as capital values soared by 12.4 per cent, compared to an average of 3.2 per cent for 30 major cities around the world.


Savills, which ranks first in its 2023 World Prime Residential Cities Index, expects the emirate's capital values to grow steadily this year as the property consultancy expects price growth of up to 7.9 per cent in prime areas.


With a prime capital value of US$730 per square foot, Dubai remains one of the most attractive real estate markets in the world.


"Two regional centres, Dubai and Singapore, are expected to top the global price growth list in 2023.


Both cities will continue to see a continued inflow of high net worth individuals, however they are not immune to rising interest rates and wider economic headwinds," said Swapnil Pilla, Associate Director of Savills Middle East Research.


He said Dubai's forecasted main price growth was between 6% and 7.9%, down from 12.4% growth in 2022.


"There is still some room for growth in Dubai given its continued level of demand and the low cost per square foot of prime property compared to other global markets," Pillai said.


The Savills report noted that many prime residential world city markets will slow in 2023, with average price growth in the 30 global cities monitored by the real estate consultancy in its Prime Residential World City Index expected to be 0.5 per cent.


"Seventeen of the 30 major global cities tracked will experience slower capital value growth than in 2022. However, 13 cities are expected to record the same or even slightly stronger growth in 2023," according to the report.


The report further said that Miami and Dubai recorded the highest levels of capital value growth in 2022 at 25.4 per cent and 12.4 per cent respectively, followed by Singapore at 6.8 per cent at 41,550 per square foot.


"Although below the highs of 2021, growth was driven by pent-up demand from international and domestic buyers, a lack of quality inventory and an influx of high net worth individuals, corporate and family offices," the report said.


Cape Town in South Africa and Rome in Italy took the fourth and fifth positions with capital value growth of 5.1% and 3.1% respectively last year.


Kuala Lumpur held steady in sixth place with a 2.9% capital value growth last year. The Malaysian capital is the most affordable city in the Savills World Prime Residential Cities Index 2023, with prices in prime areas at US$270 per square foot.


Hangzhou (China), Madrid and Barcelona (Spain) and Mumbai (India) are the remaining four cities in the top ten list of the Savills Prime Residential World Cities Index.


The Oxford Economics Institute predicts that the number of households earning more than US$250,000 per annum in each of these cities will grow by more than 15% by 2030.


In Dubai, the number of these households is also expected to double over the next seven years to just under 50,000.


"Across the 30 cities we monitor, capital values rose by an average of 3.2 per cent in 2022, contributing just 0.7 per cent in the second half of the year as economic conditions deteriorated and the interest rate environment increased," said Paul Tostevin, head of Savills World Research.


He said that while there was some potential for global growth in the second half of the year, recessionary conditions, a higher interest rate environment and inflation would have an impact on the performance of prime residential properties.


The Real Estate Advisory reports that rents outperformed capital values in 2022, as average rental values in prime locations increased by 5.9 per cent, driven by a lack of inventory and rising demand. Capital values increased by an average of 3.2% over the same period.


Rental growth was driven by a 'wait and see' approach as people continued to return to the city following the lifting of pandemic-related restrictions and rapidly rising interest rates in the second half of 2022 meaning more people chose to rent.


Lisbon and Dubai recorded major rental gains of 25.4% and 22.9% respectively last year - both benefiting from an influx of lifestyle buyers attracted by the climate and quality of life on offer in these cities, supported by a strong business environment.


At the same time, Singapore led the growth in the prime rental market with a 26.2% increase in house prices as the city opened up and there was strong demand from students, expatriates and high net worth individuals relocating to the city.


Globally, prime yields averaged 3% in 2022, with Dubai, Singapore and London seeing the fastest increases. Dubai (+60 bps to 5.3%) and Singapore (+40 bps to 2.9%) saw a significant inflow of international tenants, leading to an increase in average yields to pre-pandemic levels.


"Prime yields in London rose by 25bps to 3.2%; the city remains a global hotspot for higher education and demand from international students has further accelerated the lack of prime stock in the city," the report said.


Meanwhile, yields in the Chinese city have been declining since the outbreak as rents have grown more slowly than capital values. While the rental market in prime locations remained healthy for much of 2022, in the final months of the year, demand began to fall in China's major cities amidst wider domestic uncertainty, leading landlords to lower rents.

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