Cross-Border Financing: A Major Boost for UAE Real Estate Market

Regarding the combination of demand, check volume, and growth potential, in the next three to six months, Dubai will be the main point of attraction for people moving their money overseas.

What is it that attracts investors from around the world to Dubai?

Minimal compliance and privacy for the investor

The main magnet is the low requirements to explain the origin of funds and that it is quite easy to transfer money to Dubai. Buyers of real estate in Dubai can pay for transactions in cash or cryptocurrency if they want to buy a villa in Abu-Dhabi.

Weak compliance attracted a flood of money from all over the world to Dubai and contributed to the growth of the real estate market, as well as enriched local bankers and the business elite. This may have been due to “administrative loopholes and weak enforcement,” according to the Carnegie Endowment. However, the Dubai market has become more transparent over the past year – in the JLL Global Real Estate Transparency Index 2022, it ranks 31st.

What distinguishes Dubai from the most transparent markets in the world – the U.S. and the U.K. – is that the Dubai Land Department data does not contain information about real estate owners. Dubai is one of the largest markets where a real estate buyer can remain anonymous.

Return on investment in construction

Another driver of the market in Dubai is the desire to make money. Many people enter the Dubai market after hearing stories about how a friend purchased an apartment there and then traded it for twice the price.

Dubai realtors actively sell tasks in installments and promise an increase in the importance of the apartment at each stage of construction.

Most people do not choose objects themselves but simply buy under pressure from realtors. Dubai has good marketing and aggressive sellers. Dubai is like a big “Instagram” designed for visitors – everything is bright and beautiful, and there are offers to buy apartments in Dubai Hills everywhere.

Growth of the market and the economy as a whole

The pitfalls of investing in Dubai often include the belief that the market is overheated. However, financial analysts do not yet believe that a bubble is forming in the Dubai real estate market. For example, Swiss financial holding company UBS makes the case for why the Dubai market is fairly valued:

Real Estate
Real Estate

Firstly, Dubai is experiencing rising rental costs due to increased immigration and post-pandemic economic recovery. Disposable income dynamics have turned positive for the first time since the pandemic began. Rental growth has even outpaced house price growth over the past four quarters;

Second, the housing market in Dubai is closely linked to oil prices. As oil prices rose, house prices also increased by 10% between mid-2021 and mid-2022 – the post-pandemic economic recovery and increased immigration supported this momentum. Meanwhile, growth in the new-home market was even stronger. However, the market is now only back to 2019 price levels and is still 25% below its 2014 peak;

Third, housing is relatively affordable in Dubai, limiting the risk of a price correction. It takes approximately six years for a skilled worker in Dubai to earn a 60 sqm / 650 sq ft apartment. This is one of the lowest rates among other major cities in the world: for example, it takes ten years in Munich, 15 years in Paris, and 25 years in Hong Kong.

Dubai also has one of the lowest payback rates – when you need to rent an apartment to pay for it in full. An apartment in the same area in Dubai will need to be rented for 16 years, in London – for 26 years, in Paris – for 33 years, and in Munich – for 44 years.

It is also worth noting that real estate prices in Dubai are in the range from $2.5 thousand to $12 thousand per 1 sq. m. depending on the quality of location and stage of construction, which in general is quite correlated with the cost of production of this meter and analogs in other major metropolitan areas of the world.