A recent analysis by real estate firm Knight Frank forecasts that the Dubai real estate bubble will continue to drive home prices up by 8% in 2025 due to a shortage of supply.
The “Dubai Residential Market Review: Special Edition” report indicates that house prices across the emirate are currently 19.9% higher than at the same time last year, which is reflected in the significant increase in property transactions throughout 2024.
In Q3 2024, Knight Frank reported that transactions reached 47,269, the highest quarterly total ever recorded, marking a 41.8% increase compared to Q3 2023.
Between January and September 2024, deals worth over 306.3 billion UAE dirhams ($83.4 billion) were completed, a 36% rise from the same period in 2023, with sales in Q3 alone totalling AED 116.8 billion.
Strong demand is driving house prices in Dubai. As expected, prices in the mainstream market have continued to rise, increasing by 4.3% in Q3, resulting in a 19.9% increase year-on-year,” said Faisal Durrani, Partner and Head of Research, MENA.
He noted a 30% year-on-year decline in property listings across the city, alongside a significant rise in luxury home sales, which have tripled over the past 18 months, with nearly one in five homes listed sold between June and September.
The research highlights that the proportion of properties in Dubai valued over $1 million has grown from 6.3% of all sales in 2020 to 18.1% today. “This means that nearly one in five homes in Dubai is worth over $1 million,” Durrani explained.
However, the analysis suggests that the pace of home price increases may start to slow in 2025, providing some relief for potential buyers. “For Dubai’s prime residential market, after a 6% rise over the past year, we expect values to align with our original forecast of a 5% increase for 2024,” Durrani added. For 2025, they anticipate more modest growth closer to 5%, building on the 44.4% increase in 2022 and the 16.3% rise last year.
Supply Concerns
By the end of 2029, Knight Frank predicts that developers will build about 300,000 homes in Dubai, a response to the growing housing demand.
Projections indicate that by 2029, apartments will comprise 80.1% of the supply, while villas will make up 17.4%. With only 8,900 new villas expected by the end of 2024 and an additional 19,700 by the close of 2025, the data suggests a continuing villa shortage.
According to Knight Frank, Dubai will need between 37,600 and 87,700 homes annually by 2040 to accommodate a population of 5.8 to 8.6 million. The report states, “If historical delays of up to 30% for annual unit completions persist, we can realistically finish approximately 210,000 units over the next six years, averaging 35,000 homes per year, indicating a likely long-term housing shortfall.”
Petri Mannila, Partner and Head of Prime Residential UAE, added, “The limited availability of land in key city locations is also contributing to rising prices for off-plan homes, while prices in the secondary market are also experiencing significant growth, particularly for refurbished older homes.”
Knight Frank also highlighted macroeconomic risks that could affect residential values, such as a global economic downturn, fluctuations in oil prices, and competition from other major cities like Riyadh.