Bubble Risk? Why Dubai Property Market May Sustain Price Climbs

When the UBS Global Real Estate Bubble Index 2025 was released, one of the headline findings was that Dubai had moved into the “elevated risk” category. Over the past five years, property prices in the emirate have climbed nearly 50 per cent, with double-digit gains recorded since mid-2023.

This has raised questions about whether Dubai could be on the verge of a property bubble or whether the market’s fundamentals are strong enough to withstand a cooling phase.

Dubai at Elevated Bubble Risk

Dubai’s placement in the same risk category as cities such as Los Angeles, Amsterdam, and Geneva signals concerns that prices may have surged too quickly. A classic red flag is emerging: property prices are now rising faster than rents, reversing a trend from the past five years when rent growth outpaced property values.

Affordability has also come under pressure. While Dubai remains more attractive than many global cities in terms of rental yields, wages have not kept pace with inflation, and higher borrowing costs continue to weigh on end users.

Drivers of Market Heat

Several forces have contributed to Dubai’s strong real estate performance:

• Population Growth: Since 2020, Dubai’s population has surged nearly 15 per cent, surpassing 4 million residents by mid-2025 — a milestone that had originally been projected for 2026. Forecasts suggest a further increase of around 180,000 people in 2026 alone.
• Demand vs Supply: Between 45,000 and 96,000 properties are expected to be handed over in 2026. Even at the higher end of this range, demand from new households is expected to comfortably match supply.
• Business Expansion: With close to 50,000 new business licences issued in 2025, economic growth continues to fuel housing demand.
• Segment Dynamics: Villas and townhouses remain particularly resilient, with stronger demand compared to smaller units and apartments.

Risks Ahead

Despite robust demand, there are risks that could test Dubai’s momentum:

• Affordability Gap: Property prices have risen significantly faster than wages, squeezing local buyers.
• Rising Supply: New building permits are approaching levels last seen in 2017, just before the last downturn, raising concerns of potential oversupply.
• External Dependence: The market remains sensitive to oil price fluctuations, global capital flows, and geopolitical events.
• Regional Competition: With Abu Dhabi and Riyadh expanding opportunities for foreign buyers, competition for investment is intensifying.

Global Comparisons

The UBS index shows that Dubai is not alone in facing elevated risks. Miami, Tokyo, and Zurich are currently among the most overheated markets globally, with price-to-rent ratios and affordability metrics flashing warning signs. By contrast, London, Paris, and Hong Kong have cooled, landing in the “low risk” category due to tighter regulations and weaker growth.

Dubai sits somewhere in between — less overheated than Miami or Tokyo but more stretched than cities such as Singapore or Sydney.

Why Dubai May Be Different

While risks are real, several factors suggest Dubai’s property market may not mirror past boom-and-bust cycles:

• High Rental Yields: Compared to many global cities, Dubai still offers attractive rental returns.
• Diversification: A wider mix of property types — from branded residences to waterfront communities and innovative ownership models — broadens the buyer pool.
• Cash Buyers: A large proportion of transactions are completed without financing, reducing the risk of mortgage-driven defaults.
• Safe-Haven Appeal: Dubai continues to attract international capital as a geopolitical and financial safe haven, supporting long-term demand.

Outlook

The UBS report is not predicting an immediate crash but highlights rising vulnerabilities in Dubai’s property market. Prices have returned to previous peaks, affordability is eroding, and supply is climbing. Still, population growth, economic expansion, and international demand continue to provide strong underpinnings.

In short, while the city faces potential headwinds, the fundamentals — population momentum, investor inflows, and diversified real estate offerings — may allow Dubai to sustain its property price growth longer than many other global cities at similar risk levels.

Source: Khaleej Times