(MENAFN- Khaleej Times)

When the UBS Global Real Estate Bubble Index 2025‭ ‬was released recently‭, ‬one of the standout findings was that Dubai had surged into the‭ ‬“elevated risk”‭ ‬category‭. ‬The Emirate's property market has seen prices climb in the double digits since mid-2023‭ ‬and they're about 50‭ ‬per cent higher than five years ago‭.‬

The index gave Dubai an elevated risk of its property bubble bursting‭, ‬placing it in the same risk bracket as Los Angeles‭, ‬Amsterdam‭, ‬and Geneva‭. ‬This raises the question‭: ‬should Dubai be concerned about a looming bubble‭, ‬or are its fundamentals strong enough to withstand a cooling phase‭?‬

Recommended For You UAE: Road closure announced on Jabal Hafeet Street UAE mourns conservation icon Jane Goodall, whose legacy lives on at Expo City Dubai

“Whilst any elevation in this index from a previous lower level is never welcomed‭, ‬I believe that we have to assess all of the factors‭,‬”‭ ‬says Mario Volpi‭, ‬Senior Vice President Investment Advisor‭, ‬at Allegiance Real Estate‭. ‬“It's obvious that the Dubai real estate market cannot just simply keep rising year after year‭; ‬however the fundamentals of this bull run are clear‭.‬”

He adds‭: ‬“The population is growing at a rate that will sustain this course for a while longer‭. ‬Any price stabilisation that may come will‭ ‬be welcome but this too remains to be seen‭. ‬We may see more stability in prices in certain areas for apartments but the villas‭ ‬and townhouses will continue to see robust growth for some time to come‭.‬”

Heated market‭?‬

UBS highlights several forces behind Dubai's heated market‭. ‬Population growth of nearly 15‭ ‬per cent since 2020‭ ‬has driven housing demand‭, ‬while limited supply pushed rents‭ ‬sharply higher‭. ‬For much of the past five years‭, ‬rental increases even outpaced home price gains‭. ‬But recently‭, ‬prices have begun to accelerate faster than rents‭, ‬a classic red flag for overheating‭.‬

Affordability is also eroding‭. ‬Wages have not kept pace with property inflation‭, ‬and interest rates remain elevated‭. ‬While Dubai‭ ‬still boasts attractive rental yields compared with other global cities‭, ‬investors are now relying more heavily on expectations‭ ‬of future capital gains‭, ‬which could be a fragile foundation if sentiment shifts‭.‬

The market also remains prone to external shocks‭. ‬UBS warns that exposure to oil prices‭, ‬volatile global capital flows‭, ‬and the‭ ‬possibility of oversupply could destabilise conditions‭. ‬New building permits are climbing toward levels last seen in 2017‭, ‬just‭ ‬before the last downturn‭.‬

Add in intensifying competition from Abu Dhabi and Riyadh‭ ‬­-‭ ‬Saudi Arabia opens new zones to foreign buyers in 2026‭ ‬-‭ ‬and Dubai's ability to absorb demand is being tested‭.‬

Population growth

One of the big positives is Dubai's population growth‭, ‬which surpassed 4‭ ‬million people in August‭. ‬This number was expected to be reached in 2026‭, ‬so the city is‭ ‬well ahead of schedule‭. ‬Assuming a modest overall population growth in 2026‭, ‬the population will increase by another 180,000‭ ‬people‭. ‬Industry estimates are that between 45,000‭ ‬and 96,000‭ ‬properties will be handed over in 2026‭. ‬“Assuming two people per household‭, ‬which is not inconceivable given the largest age group in the city is between 30‭ ‬and 34‭, ‬even‭ ‬at the thick end of the wedge of these estimations‭, ‬demand will keep up with supply quite comfortably‭,‬”‭ ‬says Barnaby Crompton‭, ‬Partner at Eden Realty‭. ‬“With around 50,000‭ ‬new business licences being opened in 2025‭, ‬there is ample reason to believe that the population growth will‭ ‬remain strong‭.‬”‭ ‬But he adds‭: ‬“It's important to understand that Dubai is not an island and is not immune from the headwinds the world may face‭, ‬but for now‭, ‬I'm encouraged by the fundamentals‭.‬”

‭ ‬Paul Jeffreys‭, ‬founder of PJ Advisory‭, ‬agrees‭. ‬“I think the fundamentals are strong enough to withstand a cooling phase which might well only affect a segment of the market,being lower priced and small units‭. ‬Scarcity in the larger or more expensive properties should protect the market from an across the board cooling‭.‬”

Comparisons with other cities

The UBS index shows that Miami‭, ‬Tokyo‭, ‬and Zurich currently face the highest bubble risks worldwide‭. ‬Miami‭, ‬for example‭, ‬has seen real prices jump nearly 50‭ ‬per cent in five years‭, ‬far outpacing rents and incomes‭. ‬Tokyo's housing boom is driven by foreign inflows and a weaker currency‭, ‬but affordability has deteriorated to extremes‭. ‬

Zurich combines rock-bottom interest rates with strong foreign demand‭, ‬pushing its price-to-rent ratio to the highest of all cities studied‭. ‬Madrid‭, ‬like Dubai‭, ‬also saw its bubble risk rise sharply this year‭. ‬Prices in the Spanish capital are up 14‭ ‬per cent in real terms‭, ‬the fastest growth globally‭.‬

On the flip side‭, ‬cities such as London‭, ‬Paris‭, ‬and Hong Kong are classified as‭ ‬“low risk”‭. ‬Prices there have corrected or stagnated‭, ‬and tighter regulation or weak economic conditions have kept exuberance in check‭. ‬Dubai sits in the middle‭: ‬more overheated than Singapore‭, ‬Frankfurt‭, ‬or Sydney‭, ‬but not in the‭ ‬“extreme”‭ ‬zone of Miami or Tokyo‭.‬

Why Dubai is different

There are reasons to think Dubai may not repeat past crashes‭. ‬Unlike markets such as Vancouver or Sydney‭, ‬which introduced foreign-buyer taxes and rent caps‭, ‬Dubai remains an open market with light regulation‭. ‬This allows supply to adjust more flexibly and‭ ‬helps maintain relatively high rental yields‭, ‬property experts say‭.‬

In addition‭, ‬Dubai's real estate market is now more diversified‭. ‬Luxury branded residences‭, ‬waterfront projects‭, ‬and fractionalised investment platforms‭ (‬such as tokenised property sales‭) ‬broaden the buyer base‭. ‬UBS itself notes that prices remain‭ ‬“comparatively affordable”‭ ‬by global standards‭.‬

The prevalence of cash buyers and the city's role as a geopolitical and financial safe haven also adds resilience‭. ‬Wealthy investors from Russia‭, ‬India‭, ‬Africa‭, ‬and increasingly Europe have sought property in Dubai as a hedge against instability at home‭. ‬This international demand creates stickier capital inflows than purely speculative domestic bubbles‭.‬

Even with these strengths‭, ‬some vulnerabilities stand out‭. ‬First‭, ‬income growth has lagged far behind property inflation‭. ‬Unless‭ ‬wages rise meaningfully‭, ‬affordability will worsen‭, ‬limiting organic demand from residents‭. ‬Also‭, ‬reliance on foreign investors‭ ‬makes Dubai vulnerable to shifts in global sentiment‭. ‬If oil prices fall‭, ‬geopolitical risks flare‭, ‬or Saudi Arabia successfully diverts capital‭, ‬demand could cool suddenly‭.‬

Then‭, ‬construction activity is rising‭. ‬UBS flags that new permits could soon reach 2017‭ ‬levels‭, ‬when a flood of supply amplified‭ ‬a downturn‭. ‬While developers remain bullish‭, ‬history suggests oversupply has often been Dubai's Achilles'‭ ‬heel‭. ‬The index underlines the psychological element‭: ‬once buyers believe prices cannot go higher‭, ‬momentum can flip quickly‭. ‬In a market as sentiment-driven as Dubai's‭, ‬this presents a risk‭.‬

It's important to remember that the UBS report is not predicting an imminent crash‭; ‬however it does warn that risks are rising‭. ‬Prices have already returned to previous peaks‭, ‬affordability is deteriorating‭, ‬and supply risks are building‭. ‬But Dubai has a habit of proving people wrong‭.‬

MENAFN03102025000049011007ID1110147743