After a record breaking year in 2022, Dubai real estate could see a moderate stagnation in growth as a result of higher interest rates.
From 2 February 2023, the UAE Central Bank raised the base rate on its Overnight Deposit Facility (ODF) by a quarter of a percentage point from 4.4 per cent to 4.65 per cent after the US Federal Reserve raised its policy rate for the eighth time to bring inflation down to its target range of 2 per cent.
"Consumers' purchasing power has been affected by the increase in the ODF from 1.5% to 4.65% in 2022. This could lead to a reduction in demand, which could ultimately affect property prices," Zoom Property Insights said.
The latest Insights data further reveals that in the UAE, around 70 per cent of real estate transactions are mostly conducted in cash. This is why the impact of rising interest rates on the market will be negligible.
Ata Shobeiry, CEO of Zoom Property, believes that the impact will be limited and the market will continue to grow.
"2022 was a remarkable end to the Dubai property market as it broke several records. However, 2023 could see the real estate sector evolve in a different way, partly due to rising interest rates and the impact it will have on consumer purchasing power. There will be growth, of course, but it won't be on par with the previous year," he said.
Real estate market growth to continue
2022 witnessed price growth of just over 11 per cent. This is down from almost 16 per cent in 2021, but this is largely due to the fall in prices as a result of the Covid-19 pandemic.
According to early estimates from Zoom Property Insights, prices are expected to grow by 5% this year due to strong market demand as high net worth individuals (HNWIs) and foreign investors continue to flock and invest in the sector.
"Rates are likely to reach 4.90 per cent by the end of the year. However, the benefits Dubai offers to entrepreneurs, investors and end-users will continue to attract potential buyers who will drive the market's growth over the coming period," concluded Shobeiry.
