Affordability Must Be a Key Factor in Dubai’s Property Market in 2025

In the world of real estate, what people remember can be unpredictable. One issue that keeps coming up is budget, especially with the rising inflation in 2023. Many potential homebuyers are finding it difficult to afford housing, which is now more expensive than it has been since 2007.

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Around the world, this problem has mainly been caused by a lack of supply, meaning there aren't enough homes to meet the growing demand. Even though Policy rate have gone up in the last two years, they haven't had a big enough impact to lower prices by much. Luxury properties are the exception, where prices have dropped.

In the UAE, however, the story has been different. Between 2015 and 2020, there weren’t enough homes being built, which made experts worried about the lack of supply. In response, developers offered many different types of payment plans to attract buyers.

After COVID-19, housing prices began to rise, and new homes started being built quickly. As a result, payment plans became even more generous than they had been before, with options like the "Buy Now, Pay Later" (BNPL) model being used in real estate.

In financial markets, prices for assets like houses should balance out based on risk. If that doesn’t happen, landlords can sell properties and invest in other assets with higher returns. But despite this, the demand for housing in the UAE remains very strong. Developers have also started acting as financial lenders, making the ability to pay monthly installments more important than traditional factors like house prices or how much people earn.

In the UAE, there's a growing gap between the prices of new homes being built (off-plan properties) and existing homes. In 2024, about 75% of all property sales were off-plan homes, a big increase from around 45% in 2019.

To keep up with high prices, property owners have started Adaptating older homes, but the price difference between older homes and new ones continues to rise. For many buyers, prices for ready-to-move-in homes have started to fall, while new home prices are following a similar trend. Even when developers announce “imminent” price hikes, they haven’t had much effect.

This situation isn’t exactly like past cycles of the housing market. It’s a sign that the market is likely to follow a more moderate path, with buyers now looking for better deals on the outskirts of the city. Prices in these areas have started to rise quickly, driven by joint ventures between property owners and new developers.

The key to buying a home now has become the monthly payment. Instead of looking at traditional factors like how much it costs to build a home or comparing house prices to income levels, more buyers are focused on what they can afford to pay each month.

At the same time, some institutional investors are becoming more cautious and are turning to distressed properties—homes that are in financial trouble. These homes are being sold at lower prices through platforms like the Emirates Auction, as some buyers struggle to meet their mortgage payments.

For most people, a home is not just an investment, but a place to live. But for economists, homes are often seen as income-generating assets, which is why home values are so important in measuring inflation.

Owning property remains a key goal for long-term policies in any country, and the UAE is making strides toward that goal. However, property values continue to be important. The growing popularity of off-plan homes suggests that prices may eventually return to more balanced levels. If affordability becomes the central issue, the market might adjust on its own, with prices coming down. Alternatively, government policies could be put in place to encourage developers to offer more affordable prices, like the smart rental index. Whatever happens, affordability will be a major focus for both developers and homebuyers in 2025, and property values will continue to be an important part of this discussion.

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