This article is co-authored by Luo Xuhong and Prathit Maran.
What comes to mind when you hear the term Dubai? Most will instantly remember the soaring spire of the Burj Khalifa, the tallest building in the world. Others will recall the row of skyscrapers along Sheikh Zayed Road that never seem to end or the luxurious resorts that dot the fronds of the artificial tree-shaped island of Palm Jumeirah off the Dubai coastline. Regardless, real estate has been a mainstay of Dubai's economy since the dawn of the 21st century. In this article, we will examine how real estate has played an integral role in Dubai's journey from a patch of sandy wilderness to a sprawling metropolis over a mere 5 decades.
A Brief Journey Back In Time
As with most nations in the Middle East, the discovery of oil in the 1960s was a pivotal moment in the modern history of Dubai. At the time of UAE’s founding in 1971, Dubai remained little more than a fishing village located on the edge of the harsh Arabian desert. Yet, major changes were on the horizon. The first and second oil crises that saw oil prices spike multifold from US$3 pre-1973 to almost US$39.50 in 1979 brought billions of windfall revenue to state coffers. Under former UAE president Sheikh Zayed’s rule, oil revenue was invested in various state institutions such as schools and hospitals for local Emiratis to enjoy free of charge, a policy that continues to this date. Crucially, both Sheikh Zayed and then Dubai ruler Sheikh Rashid knew that oil wells would eventually run dry one day and thus envisioned a diversified economy no longer reliant on oil revenues as the main contributor to Dubai’s GDP.
Real Estate in Dubai
Historically, Dubai’s tourism sector was closely intertwined with the development of its real estate. An efficient government known for its political stability has been credited with setting the stage for attracting foreign investment to Dubai in line with Sheikh Rashid’s vision. Over the years, Dubai has enacted several foreigner-friendly policies that have encouraged waves of successive foreign investment in real estate. The landmark legislation of 2002 that permitted foreigners of all nationalities to own freehold property in specific zones signalled the start to years of sustained growth. Subsequent decrees in following years have expanded the number of neighbourhoods in which foreigners are permitted to own freehold property. Today, some 60% of Dubai’s residential property allows for some degree of foreign ownership. [cite Note_Foreign-investment-in-the-Dubai-housing-market.pdf] In fact, foreign ownership was further extended to private property owners of select plots of prime land along Sheikh Zayed Road and Al Jaddaf in January 2025, a move that is expected to entice a fresh wave of investment in these strategic locations.
Next, Dubai has also extended generous residency programs for foreign property investors in a bid to attract global talent to put down roots in the emirate. First launched in 2018, its Golden Visa program granted residency rights for 5 years to any investor (along with their families) who bought real estate valued at a minimum of 5 million AED. Several amendments in 2022 made the program significantly more attractive: the length of residency rights offered was doubled to 10 years while the minimum value of the property purchased was more than halved to 2 million AED. Mortgages could also be taken out on these properties through selected local banks.
Even amidst the pandemic, Dubai’s policies were influenced by its goals of retaining its status as a star attraction for foreigners. A relatively high vaccination rate allowed Dubai to enact modest limits on social interactions and movement. Naturally, thousands eager to escape the stifling restrictions in their home countries flocked to Dubai. This surge in foreigners was credited with easily offsetting the pandemic-induced plunge in tourism revenues earlier in 2020. Naturally, this has also extended to real estate transactions: residential property purchased by foreigners increased by 20% ($23bn) in a mere 2 years from 2020 to 2022.
Moreover, UAE’s favourable taxation regime (no individual income tax, capital gains tax or estate tax is levied) has further cemented Dubai’s reputation as the leading wealth hub of the Middle East. Unsurprisingly, Dubai has emerged as the magnet for capital fleeing conflict regions. A report by the EU Tax Observatory found that Russian interests in Dubai have sharply increased since Russia’s invasion of Ukraine, with an estimated US$2.4bn of existing property and another US$3.9bn of off-plan property newly acquired by Russians keen to redeploy capital in the safe haven. Reportedly lax financial controls have also resulted in illicit funds from a variety of sanctioned entities acquiring Dubai property.
This remarkable transformation is also evident in Dubai’s economic data. Back in the 1970s, oil once contributed to half of Dubai's GDP. Meanwhile at the height of the financial crisis in 2008, oil revenue accounted for a mere 2% of GDP, testament to the success of the emirate's diversification efforts.
Amidst the euphoria, some have also questioned the sustainability of Dubai's real estate sector. After all, memories of the real estate bubble that burst during the 2007-8 financial crisis are still fresh in the minds of many. Back then, consecutive years of cheap credit coupled with strong oil revenues fuelled an unprecedented construction boom in Dubai. Extensive use and trading of “off-plan” property contracts (real estate sold on a pre-sale basis to buyers who are expected to put down a small initial deposit and pay off the rest according to the actual progress of construction) allowed for massive short-term speculation that was clearly beyond what market fundamentals were able to support.
Eventually, a market correction was due in 2008 as the ripple effects of the financial crisis reached Dubai’s shores. As residential prices plunged by more than 50% between end 2008 and 2009, neighbouring emirate Abu Dhabi and the UAE central bank offered a $10bn bailout each that together saved key developer Dubai World from going under.
The Moral Hazard of Leverage
As the dust from the financial crisis settled, an important issue that emerged was the role that some developers played. Major real estate government-related enterprises (GREs) were quick to take advantage of the surge in demand in the lead-up to the financial crisis, frequently attempting to outdo each other with the creation of iconic projects that prioritised visibility over utility (examples include Nakheel’s Palm Jumeirah and Emaar’s Burj Khalifa). Relying on close ties with government entities, these GREs were seen as the poster child of Dubai’s successful economic transformation - they enjoyed vast sums of cheap credit backed by an implicit government guarantee. This led to a highly distorted assessment of the health of Dubai’s real estate sector for foreign investors, who were mostly none the wiser.
The ghosts of Dubai’s real estate ambition can still be seen today: the World Islands and Dubailand are grandiose projects that exist merely on artist renderings, their development placed on hold indefinitely. Herein lies the textbook case of moral hazard as brand-name developers were permitted to take on increasingly riskier projects with few guardrails in place. Unsurprisingly, it all came crashing down like a house of cards as liquidity dried up amidst the financial crisis.
Rule and Order
In the aftermath of the financial crisis, Dubai has instituted a series of regulations aimed at shoring up confidence in the sector.
Firstly, all off-plan property developers must open escrow accounts into which investor funds are paid. These accounts are subject to regular audits by the Dubai Land Department and protected from creditors. This measure ensures that developers can only access investor funds upon the completion of various construction milestones, thereby eliminating the risk of developers absconding with the funds or financing other unrelated ventures.
Next, the issue of excessive speculation was also addressed with the tightening of loan-to-value limits on mortgages since 2013. Now, foreigners are only permitted to take out a property loan for a maximum of 75% of its value. Stricter limits apply for more expensive property valued above AED 5mn as well as for subsequent property purchases while off-plan property faces the most restrictive loan-to-value ratio cap at 50% of its value.
More recently, Dubai has also emphasised the need for transparency within its real estate sector. Available since at least 2019, the DXB Interact platform aggregates available data on Dubai’s property market (e.g area-specific property trends and transaction volumes) in conjunction with the Dubai Land Department (DLD). The creation of such a one-stop shop allows investors to access precise information at their fingertips, reducing instances of misinformation and curbing speculative behaviour. Regulations issued by the RERA in 2024 spells out specific limitations on off-plan advertising, such as the substantiation of all claims involving potential returns on investment. All advertisements must also be approved by the DLD beforehand. Coupled with the introduction of the Golden Visa scheme (as previously discussed), it is evident that the Dubai government is catering to the needs of long-term foreign investors while simultaneously combating unsustainable short-term speculation.
In 2020, state-owned entity Dubai World completed its decade-old debt restructuring plan 2 years ahead of time with a final payment of US$8.2bn. The successful restructuring is expected to be the final step in a long-drawn process that has largely restored confidence in Dubai’s leading developers. Post-financial crisis, Dubai’s housing regulator Real Estate Regulatory Authority (RERA) has also conducted reviews into the entire industry and ordered the cancellation of more than 200 housing projects by mid-2011. Today, robust oversight by the RERA ensures that developers are carefully screened before permits that allow for launch of their projects are issued.
Sustainable Urban Planning
Beyond the glitzy world of skyscrapers and luxurious villas, Dubai is also known for its forward-looking urban planning and zoning regulations. Favourable industrial policy has allowed Dubai to develop a flourishing export-oriented economy in addition to its recent emergence as a hub for financial services.
Since the establishment of Jebel Ali Port as the emirate's first free trade zones in 1985, dozens of other free trade zones designated for a wide range of industries have sprung up all over Dubai e.g Dubai Maritime City, Dubai Silicon Oasis that caters to the maritime and tech sectors respectively. One of the best known is the Dubai International Finance Centre (DIFC). Uniquely operating under its own independent judiciary that is modelled after English common law, DIFC's star attraction is its in-house international arbitration centre for commercial disputes. All FTZs permit full foreign ownership and have no restrictions on profit repatriations, drawing in thousands of entrepreneurs keen on establishing a foothold in the Middle East.
Another major area of future development is Dubai South, envisioned as the primary logistics hub as part of the Dubai 2040 Urban Masterplan. Central to this is the planned expansion of the Al Maktoum International Airport into the largest airport in the world in terms of freight capacity. Al Maktoum, DXB’s future replacement, is set to be a stop along the future Etihad rail that connects the emirates of Abu Dhabi and Dubai. Its relative proximity to the Jebel Ali Port allows for the logistics sector to enjoy economies of concentration, in turn strengthening the emirate's position as a multi-modal trade hub. In sum, farsighted urban planning and curation of developments in specific districts has allowed Dubai to develop a sustainable environment for both work and play.
While there are reasons that suggest Dubai’s property growth is a temporary boom fueled by over-optimism, we believe that underlying long-term demand will sustain the trend into 2026 and beyond. A favourable regulatory environment has placed Dubai firmly on the world map as the preferred destination for tourists, entrepreneurs and family offices alike. The case for Dubai will only be stronger as the world enters a prolonged era of geopolitical uncertainty and conflicts erupt in all corners of the globe.
References
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