Oversupply and high interest rates may reduce the growth rate of UAE real estate market

Oversupply and high interest rates may reduce the growth rate of UAE real estate market

The impressive recovery of the real estate market of the United Arab Emirates, which began in the spring of 2021, maintained stability without any problems in the first half of 2022, even despite all the existing economic and geopolitical problems.

However, soon the current state of this national market may be disrupted, and the growth rate will noticeably slow down. The main reason, according to some experts, is an oversupply of residential real estate, as well as an extremely intensive increase in the key interest rate, which determines the high cost of mortgage loans.

The first six months of this year showed impressive indicators of an increase in the number of transactions, their cost, real estate prices and rental rates. Pre-sales of real estate under construction, produced by developers in the UAE, also showed an increase. The peak for the formed trend was already August 2022, when the locomotive of the national real estate sector - Dubai broke the 12-year record for monthly sales of housing and other real estate.

The best segment of the market was villas, especially large-sized and premium. They showed the largest relative growth in all terms: demand, prices, sales volumes year-to-year, quarterly and monthly. A big role was played by the change of preferences of buyers and investors against the background of COVID-19.

A huge number of people paid attention to large real estate, well suited for both living and working. Sales were also facilitated by practically free money that consumers and investors could take from banks offering historically low payout rates.

At the same time, in absolute numbers, even today the real estate of the Arab Emirates remains one of the most affordable in the world. It is also 25-30% cheaper than the record peaks of 2014.

To the oversupply of offers and the key rate, it is necessary to add global inflation, which overcomes all reasonable limits, international instability, the strengthening of the dollar and a number of other factors. All the events that are taking place have created a rather panicky atmosphere among the wealthy categories of the population, which motivated them to look for «quiet bays» for savings. One of these bays has become the UAE, namely Dubai.

It is the latter that has allowed the region to demonstrate such impressive results in the last 2 years. And these results have greatly diverted attention from many fundamental problems of the market, which the government of the country and each individual emirate is trying to actively fight.

However, this struggle will take years, if not decades. And since panic moods are unstable, and the number of wealthy international buyers is not unlimited, the first weakening in the most premium and profitable segments of the market will expose its general weaknesses. This is exactly what will be reflected in the form of a noticeable cooling and slowing of the growth of indicators.

At the same time, experts expect a decrease in the number of openings of new mortgage loans in UAE banks. Although the situation, even in the worst case, should not radically disrupt the work of the construction sector and the real estate market of the country, since mortgage transactions for the purchase of real estate are responsible for only one-fourth of all transactions for this type of assets.

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