Dubai's real estate market is expected to lead the global price charts in 2023 as it continues to attract high net worth individuals (HNWIs), but rising interest rates and continued headwinds could weaken demand.

Across the emirate, prices for high-end residences are set to jump 6 per cent to 7.9 per cent this year, the highest in the world, according to property consultancy Savills. Capital value growth in Dubai, however, will be similar to that in Singapore, falling short of last year's record growth of 12.4 per cent.

Growth in Dubai, as well as Singapore, will outpace that of Miami and Milan, where prices are likely to grow by around 4 per cent to 5.9 per cent, as well as Cape Town and Rome, both of which will record growth of 2 per cent to 3.9 per cent this year.

"Both cities (Dubai and Singapore) will continue to see continued inflows of high net worth individuals; however, they are not immune to higher interest rates and broader economic headwinds," Savills said in its report.

The real estate consultancy said that Dubai has seen "quite subdued" growth in gold prices this year compared to last year. Other markets are also expected to experience a slowdown in the coming months.

"Overall, the prime residential market in many world cities is set to slow in 2023, with average price growth in the 30 global cities monitored by Savills expected to be 0.5 per cent," the report said.

Interest rates

Interest rates have been on the rise since last year as the Federal Reserve introduced a series of price hikes to curb soaring inflation. Last month, central banks achieved another interest rate hike, with the UAE implementing a 25 basis point hike on overnight deposits.

"Despite the potential for global growth in the second half of the year, recessionary conditions, a higher interest rate environment and inflation will have an impact on the performance of quality homes," said Paul Tostevin, Head of Savills World Research.

Tostevin added: "The forecast growth of 0.5 per cent is down somewhat from last year's 3.2 per cent; however, the scarcity of quality homes, coupled with a lack of inventory, will prevent a more significant slowdown.

Savills tracks 30 major cities around the world for its World City Quality Homes Index.

Of the destinations studied, 17 cities are likely to grow more slowly this year than in 2022.

However, 13 of these 30 cities are expected to record equal or even slightly stronger growth in 2023.

Last year's performance

Dubai's 12.4 per cent overall price growth last year was the second highest in the world, behind Miami, which saw 25.4 per cent growth.

"Miami and Dubai recorded the highest level of capital value growth in 2022 ...... These markets remain relatively competitively priced by global standards, with low costs of living, tax regimes and warmer climates attracting international and domestic buyers," the report said.

Other global hubs, such as Singapore and New York, also performed well last year, recording capital value growth of 6.8 per cent and 6.1 per cent respectively. New York, in particular, benefited from the influx of high net worth individuals building businesses.

Dubai has 67,900 millionaires as of June 2022. According to strategic consultancy firm Webster Pacific, most millionaires live in high-end neighbourhoods such as Jumeirah First, Al Barsha, Jumeirah, Arabian Ranches and Al Thanyah.