Is Dubai’s Real Estate Market Facing a Bubble?

Not according to the most recent findings from the UBS Global Real Estate Bubble Index for 2023, released last week.The UBS Global Real Estate Bubble Index “traces the fundamental valuation of housing markets and the valuation of cities in relation both to their country and to economic distortions (lending and building booms).”Based on the findings of the report, “Given strong income growth and a red-hot rental market, with rental growth even surpassing owner-occupied price growth, we see the market as fairly valued. This is based on an index that uses the following risk-based classifications: depressed (score below –1.5), undervalued (–1.5 to –0.5), fair-valued (–0.5 to 0.5), overvalued (0.5 to 1.5), and bubble risk (above 1.5).

The index score is a weighted average of the following five standardized city sub-indices: price-to-income and price-to- rent ratios (fundamental valuation), change in mortgage-to- GDP ratio and change in construction-to-GDP ratio (economic distortion), and city-to-country price ratio. The city-to-country price ratio in Dubai is replaced by an inflation-adjusted price index.

“Recognizable indicators include prices soaring beyond local incomes and rents, as well as imbalances in the broader economy, such as excessive lending and construction activity. To assess the risk of a property bubble, the UBS Global Real Estate Bubble Index examines these patterns, though it does not predict when or if a correction will occur. Factors like shifts in macroeconomic conditions, changes in investor sentiment, or substantial increases in housing supply can potentially trigger a decline in house prices.”

However, in Dubai, there continues to be a “demand greater than supply” equation, as both the population and tourism continue to increase.

These factors, along with high capital appreciation rates, high long-term and short-term rental returns in a stable, safe, and tax free city that is becoming a global hub continue to drive the luxury real estate market to surpass most others, globally, as for buyers/investors.

Read the full report findings, HERE.

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