The real estate market in Dubai is set to enter a "moderate correction” in the second half of 2025 because of a record number of project launches, Fitch Ratings has said.
The correction – a phase in which price of an asset declines by 10 per cent or more – would run through 2026, but is not expected to exceed 15 per cent, as the strength of the prime real estate segment will support the rest of the market, the New York-based ratings agency said in a research note on Thursday.
While corrections that can last from days to months or longer could devalue asset prices and value of investment portfolios in the short term, they are also an opportunity for buying new assets at lower values.
Real estate prices in the emirate, the commercial and financial hub of the Middle East, have leapt by about 60 per cent from 2022 to the first quarter of 2025, Fitch data showed.
The market has maintained a robust momentum after bouncing back from the Covid-driven slowdown and its world-beating run was supported by government measure including multiple visa options for investors and policy measures that boosted ease of doing business in the emirate.
Over the past few years, there have been a record number of new property launches, which in turn will double unit deliveries in 2025 and 2026 compared to 2022 to 2024, "which could cause a price correction”, analysts at Fitch said.
"Assets in prime locations are more resilient to downturns and investor appetite for these assets, with longer investment horizons, should underpin their valuations. Delays in project completion might also alleviate pricing pressure,” Fitch said.
However, the ratings agency expects that banks as well as developers will be able to "tolerate” falling real estate prices, with the former in particular having a "solid ability to tolerate risks”, as banking sector exposure to property sectors fell to 14 per cent of total gross loans at the end of 2024, compared to 20 per cent at the end of 2021.
Despite the reduction in lending portfolio exposure, real estate still remains the largest component of banks' loan books. However, "while a drop in prices could lead to a moderate rise in stage 2 and 3 loans ratios at some of rated banks, we do not expect a sector-wide asset quality deterioration”, Fitch added.
Homebuilders, on the other hand, remain well funded, giving them a buffer to withstand a price correction as they have "reduced execution risk and have favourable pre-sales models, supported by robust order backlogs”, providing cash flow visibility, Fitch said.
Sustained demand from a growing population and heightened investor interest are driving property sales in Dubai. The property market has also been benefiting from government initiatives, such as residency permits for retired and remote workers, expansion of the 10-year golden visa programme and overall growth in the UAE’s economy on diversification efforts.
Real estate prices in Dubai rose above their 2014 historical peak in early 2024 on high oil prices and regional political instability.
Abu Dhabi's prices, meanwhile, rose by 21 per cent since the pandemic, although they remain below 2014 levels. Other emirates also recorded increases since the pandemic, but considerably less compared to Dubai.
Dubai launched a record number of projects in 2024, resulting in a supply of an estimated 150,000 units, half more than 100,000 in 2023. Deliveries would spike in 2026, when about 120,000 units are planned for handover, compared to 30,000 in 2024 and 90,000 in 2025.
"This rate of project delivery roll-out will test the absorption rate of the Dubai residential market in 2026–2027,” Fitch analysts said.
While Fitch estimates a prices correction, Betterhomes among the biggest property brokerages in the emirate expects rising interest from buyers.
The move to impose sweeping global tariffs by US President Donald Trump is unlikely to affect prices in the UAE real estate market, Betterhomes said a separate report.
Interest is coming from US and Chinese investors, "signalling a renewed appetite for Dubai real estate as a stable and strategic investment destination”, said Louis Harding, chief executive of Betterhomes.
The sustained momentum of the emirates' economy, its strong tourism sector, high public spending and diversification efforts that continue to mitigate external risks, also add to the appeal of Dubai's property market, according to Betterhomes's report.
