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UBS: buying a home in Dubai still beats renting despite bubble risk

Dubai's score in UBS's property bubble index rose to 1.16 from 1.09, fourth among 23 cities.

Summary

  • Dubai's score in UBS's property bubble index rose to 1.16 from 1.09, fourth among 23 cities.
  • A skilled service worker needs five years' income for a 60 sq m central flat, against 11 in London.
  • High rents keep ownership attractive, while the Iran war slows prices and weighs on the premium segment.

The latest

Dubai remains one of the few major housing markets where buying a home is more attractive than renting, despite elevated bubble risk, according to a new UBS report. The emirate's score in the UBS Global Real Estate Bubble Index rose to 1.16 from 1.09 last year, fourth among 23 cities, in the elevated-risk category alongside Miami, Seoul, Geneva and Lisbon.

Details

  • Prices and rents: UBS said the risk has eased since the start of the Iran war as the boom loses momentum: inflation-adjusted home prices rose just 0.4% a year in the second quarter, while real rents fell 4%. The bank expects tenants to use the pause in price growth, and in some cases price concessions, to buy.
  • Affordability: Dubai remains one of the most affordable markets in the study. A skilled service worker needs five years of income to buy a 60 sq m apartment near the city centre, against 11 years in London and 15 in Hong Kong. Only Zurich and Tokyo were rated high risk.
  • The premium segment: UBS expects uncertainty over a recovery in the inflow of high earners, because of the Iran war, to weigh on Dubai's premium segment. It said the city's structural advantages, including its location and its pull as an international business hub, remain intact.
  • The market now: Dubai residential prices rose about 1.9% a year in the second quarter, with apartments up 1.3% and villas 5.7%, according to consultancy CBRE. Emaar Properties founder Mohamed Alabbar estimated a 5% to 10% adjustment because of the war, followed by balance in 2027 as new supply arrives.

What's next

UBS said an improvement in the geopolitical environment could support a rapid recovery in sentiment and price expectations. The next watchpoint is the new supply Alabbar expects in 2027.

Source: The National; UBS; CBRE