Why UAE’s luxury real estate market attracts global investors

Post by: Raman Preet

The UAE luxury real estate market is expanding fast, driven by favorable government policies, robust economic growth, and a consistent flow of high-net-worth foreign investors. Individuals and institutions alike are being attracted to this thriving sector in increasing numbers.

UAE Leads in Foreign Investment

The UAE has become the Middle East's leading recipient of foreign direct investment (FDI). Based on the recent UNCTAD World Investment Report, the country received almost half (45.4%) of the region's FDI worth $67.6 billion. The UAE also outperformed any other nation in the world in terms of FDI in relation to the size of its economy.

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This achievement is a result of the government's initiatives to develop an investor-friendly environment. In addition to guaranteeing safety and security, the authorities have established new policies and regulations that increase the appeal of investing in the UAE.

Government Initiatives Driving Growth

Among the main drivers of FDI is the NextGenFDI initiative, which encourages entrepreneurship and public-private sector collaboration. The UAE has also witnessed tremendous FDI inflows in numerous sectors, such as real estate.

Dubai real estate, in turn, is likely to record a 9.9% price hike in 2025 (as forecast by Savills), after registering a 19.9% growth in 2024 (as predicted by Knight Frank). The growth is being driven by high-net-worth investors from the UK, Europe, and Asia. The liberal visa policy of Dubai, including retirement residency visas, improved employment prospects, and a desirable lifestyle, has many drawn towards it.

Booming High-Value Properties

Today, close to 20% of all housing in Dubai is worth more than $1 million. The top-end residential sector is forecasted to increase 5% this year as about 300,000 new residences are projected to be developed by 2029.

Role of Institutional Investors

Major investment companies are taking a leadership role in financing big projects, especially in the build-to-rent segment. They are facilitators for foreign institutional investors to invest in the UAE market.

A new policy from the Central Bank of the UAE has just become effective that mandates a higher down payment, plus Dubai Land Department registration and broker commission. Buyers are now required to pay an extra 6% over the standard 20% down payment. For a Dhs4 million home, this would be an extra Dhs240,000.

This step is going to stabilize the market by inducing financially sound customers, minimizing risk of defaults or foreclosures. It's viewed as a welcome step for aligning the mortgage system in Dubai with worldwide standards.

Expanding Luxury and Ultra-Luxury Segments

In spite of tougher regulations on financing, the luxury segment of the housing market is expected to expand further due to reasons such as

Enhanced Property Designs – Developers are collaborating with high-end brands to enhance design and amenities in non-waterfront properties, raising property prices by 15-20%.

Affordable Luxury Relative to Other International Cities – Relative to cities such as New York, London, or Singapore, Dubai luxury residences provide greater value for money. Properties also have bigger plots, both indoor living space and outdoor spaces such as gardens and terraces.

High Rental Yields – Dubai’s build-to-rent market is thriving. Investors typically earn rental yields of 7-8%, significantly higher than the 3% yields seen in European cities.

Future Outlook

Many foreign investors, especially pension funds and feeder funds, are showing growing interest in Dubai’s real estate sector. A typical property investment takes about three years to build, and rental returns stabilize after four years when at least 90% of the units are occupied. At this stage, institutional investors often step in to purchase the asset.

Also, the forthcoming GCC-United Kingdom Free Trade Agreement is likely to further increase real estate investments in the UAE. Although no investment is risk-free, the UAE luxury property market still presents great opportunities with comparatively low risk.

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