During the COVID-19 pandemic, safety measures confined residents indoors, leading to a sharp increase in demand for larger homes. Despite a significant rise in prices post-pandemic, new property units in Dubai are approximately 12.5% smaller than older ones. This shift has driven many buyers and investors to more affordable suburban areas where they can purchase larger properties at lower rates.
Zhann Jochinke, Market Intelligence and Research Director at Cavendish Maxwell, highlighted significant differences in the quality and overall supply between new and older apartment projects. He noted that one-bedroom apartments carry the highest per-square-foot premium, with new units being about 12.5% smaller than older ones. Despite the reduction in size, the sales prices have shown only a slight increase.
Property Monitor's analysis reveals that off-plan (pre-construction) prices carry a premium of over 20%, with areas like Dubai Sports City and International City seeing premiums as high as 80% and 70%, respectively. The pandemic increased the demand for larger homes as people were confined indoors. The subsequent surge in demand for Dubai real estate pushed prices and rents to record highs.
High demand has also led to significant increases in land prices, prompting some developers to reduce apartment sizes to accommodate more units in their projects. As prices in mature communities in Dubai soar, more people are opting for more affordable areas where they can find similar or even larger properties at lower prices. Rising rents and more accessible mortgage products are also driving many residents to buy homes.
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According to Cavendish Maxwell's real estate monitoring report, property prices continued to climb to historic highs, reaching AED 1,351 per square foot in April 2024. This is 72.1% higher than in April 2009 and 9.5% above the market peak in September 2014. Compared to the previous year, prices in April rose by 20.1%, marking 38 consecutive months of year-on-year increases. Prices in April 2024 were up by 5.23% from the same month in 2023, compared to a 2.67% increase in April 2023.
Zhann Jochinke anticipates that the distinction between the ready (completed) and off-plan markets will persist. He stated that aside from the impact of villa renovations, the market for most property types and price points continues to stabilize. This is particularly evident in the villa sector, where many properties have been sold and then extensively renovated as the market recovers.
The off-plan market is expected to maintain its dominance, with strong project launches continuing. Despite strong recent demand for off-plan sales, monitoring absorption rates is essential. A slowdown in absorption could signal a potential oversupply issue, which might lead to market deceleration.
While Jochinke remains optimistic about the coming year and expects continued growth, he advises that developers, investors, and tenants should remember the lessons learned from past market fluctuations. As the market continues to evolve, cautious and informed decision-making will be key to ensuring long-term success.
