The UAE’s luxury real estate market is booming, attracting investors from around the world due to its liberal policies, strong economic growth, and the influx of wealthy foreign buyers. Both institutional and individual investors are eager to take part in this expanding market.
The UAE has become the top destination for foreign direct investment (FDI) in the Middle East, capturing nearly half (45.4%) of all FDI flows, which total $67.6 billion, according to the latest figures from UNCTAD’s World Investment Report. The UAE is also a global leader in FDI relative to the size of its economy.
This strong performance is no surprise given how much the UAE government has prioritized FDI to boost its economy. The country has made efforts to ensure a stable environment by focusing on safety, security, and improving policies and regulations.
Public-Private Collaboration Boosts Investment:
Initiatives like NextGenFDI encourage cooperation between public and private sectors, promoting entrepreneurship and investment. FDI growth has been seen across various sectors, including real estate.
In Dubai, property prices are expected to rise by 9.9% in 2025 (according to Savills), following a 19.9% increase last year (according to Knight Frank). This growth is driven by the continued influx of wealthy foreign buyers from the UK, Europe, and Asia. These buyers are attracted by new policies such as residency permits for retirees, more job opportunities, and a high quality of life.
Currently, nearly 20% of all homes in Dubai are valued at $1 million or more. According to Knight Frank, the prime residential market is expected to grow by 5% this year, with 300,000 new homes expected to be added to the market by 2029.
Institutional Investment And Build-to-Rent Projects:
Alternative investment managers have played a key role in structuring capital-intensive projects like build-to-rent portfolios, which continue to draw institutional investors. These investment managers help channel institutional capital into the UAE’s real estate market, contributing to the market’s growth.
A recent change by the UAE’s Central Bank requires banks to exclude Dubai Land Department registration and broker fees from mortgage deals. Buyers now need to pay an additional 6% on top of the 20% property value down payment. For a property worth Dhs4 million, this means an extra Dhs240,000, making it harder for some buyers to enter the market.
However, this change signals a more mature real estate market with financially prepared buyers, which helps reduce risks of default or foreclosure. It aligns the UAE with international practices, where such fees are not typically included in mortgage deals.
Luxury Real Estate’s Continued Growth:
Despite the changes, the luxury real estate market is expected to continue growing. Several factors support this outlook.
Firstly, many developers are working with luxury partners to upgrade design specifications, amenities, and transport connectivity in non-waterfront areas. These improvements can increase property value by 15-20%.
Secondly, compared to cities like New York, London, or Singapore, luxury homes in Dubai are more affordable, offering better value for investors. Additionally, Dubai’s average plot size is larger, with more livable space and outdoor areas like gardens and terraces.
Another key factor is the stable and growing build-to-rent market in the UAE, which offers higher annual yields—typically 7-8%—compared to just 3% in Europe. While high-net-worth individuals and companies invest in the market, the majority of international investors (around 70-80%) are foreign pension funds and feeder funds.
After a property is built (usually within three years) and rental rates stabilize over four years, with 90% of the units rented out, it can then be sold to an institutional investor.
The upcoming GCC-UK Free Trade Agreement is also expected to boost real estate FDI in the UAE, providing even more opportunities for investors.
Conclusion:
While no investment is without risks, the luxury real estate market in the UAE still holds a lot of potential with relatively low risks. The country’s strong economic policies, growing FDI, and attractive investment opportunities continue to make it a prime destination for global investors looking for long-term growth
