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Dubai’s real estate, cost of living conundrum creates opportunities for Gulf rivals to capitalize


Al-Monitor Pro Members


Samuel Wendel

Senior Market Research Analyst, Al-Monitor


May 12, 2023

Bottom Line:

A new influx of global wealth has the UAE’s real estate market red hot and is pushing Dubai’s luxurious tax free lifestyle to new heights. However, this boom also threatens to price out many expats, with soaring rents fueling rising living costs. Signs point to that trend continuing through 2023 — raising fears of an expat exodus that could alter the UAE’s reputation as a global business hub. That could suit Saudi Arabia just fine at a time when the kingdom is prying business and senior executives away from its smaller Gulf neighbor. 

Background Facts:
  • In 2021, Dubai was the world’s 42nd most expensive city, up from 23rd in 2020, according to Mercer’s annual Cost of Living City Ranking, which ranks 209 cities on comparative expenses. That placed it well ahead of other key global business hubs like London (18) or Singapore (7) in terms of affordability.
  • Abu Dhabi ranked 56th globally in 2021, compared to 39th in 2020. Those results saw Mercer tout the UAE as an increasingly attractive and affordable expat destination thanks to cheaper real estate, deflation and dollar movements. Equally important: its successful COVID strategy, with the UAE quickly mitigating pandemic impacts and reopening for business.
  • Yet, 2022 saw Dubai’s ranking retreat, with Mercer rating it the world’s 31st costliest city despite Abu Dhabi improving to 61st. Elsewhere in the Gulf, Riyadh was 103rd — a marked improvement from 29th in 2021 — while Manama was 117 and Doha 133. 
  • This came as the UAE further cemented its status as a luxurious safe haven for wealthy expats and investors unwelcome in many jurisdictions — from crypto millionaires to affluent Russians fleeing western sanctions.
  • The UAE was expected to have attracted 4,000 millionaires in 2022, ranking first among countries with the highest projected net inflows of high-net-worth individuals, according to the Henley Private Wealth Migration Dashboard. Meanwhile, Saudi Arabia was expected to have lost 600 millionaires in 2022. 
  • In 2022, the UAE issued 79,617 Golden Visas, a 10-year residency permit for investors, entrepreneurs and skilled professionals first introduced in 2019. That was up from 47,150 from 2021, according to government stats. 
  • Dubai’s real estate sector saw record transactions totaling $144 billion in 2022, according to state news agency WAM. Residential rents reached record levels in 2022, with average apartment rents increasing 27.1% and villa rents rising 24.9%, according to real estate services firm CBRE.
  • Average annual rent for a Dubai apartment reached $27,000 and villas hit $80,000 during January and February 2023, with average rents increasing 27.7% during that period, according to CBRE. For context, average rents in Riyadh in Q1 2023 increased 2% year-over-year, according to real estate services company JLL.
  • In Q1 2023, Dubai’s real estate sector recorded 38,700 transactions worth $43 billion, an 80% increase in value alongside a 49% rise in volume from Q1 2022, according to WAM. Simultaneously, Abu Dhabi’s Q1 real estate transactions were worth $7.6 billion, an 147% increase compared to Q1 2022, while transactions rose 66%. 
  • Notably, 13,338 new investors entered Dubai’s real estate market in Q1 2023, up 12% from Q1 2022, with non-resident investors accounting for 45% of total acquisitions, up 25%, again per WAM.
  • Still, Emirates NBD reports that Dubai’s real estate sector overall grew at a slower pace in Q1 2023, while average growth in rents began stabilizing across all apartment segments, declining from 20.1% in Q4 2022 to 19.9% year-over-year in Q1 2023
  • Dubai office rents in Q1 2023 were up 20.8% year-over-year, which Emirates NBD called a clear indication businesses continue moving to Dubai, with notable demand in prime areas.
  • Housing isn’t the only factor: as of May 2023, a single person’s estimated monthly living costs in Dubai without rent stood at about $1,019, up 10.5% from May 2022, according to Numbeo, a crowd-sourced global database of quality of life data. For comparison, the corresponding estimate in Riyadh stood at about $820 in May 2023, roughly a 4.7% increase from a year ago.
  • UAE salaries have lagged inflation, according to recruitment consultancy Robert Half’s 2023 Salary Guide, which found that average UAE salaries have increased by 3.2% over the past 12 months, while the UAE’s central bank projected 5.6% inflation
  • 52% of UAE employees surveyed reported it was becoming harder to afford monthly living expenses and 59% worried about the cost of living. 47% of expats reported that rising cost of living would be their most likely reason for leaving the UAE.
  • This all comes amid Saudi Arabia’s push to pry business and senior management away from the UAE. Crucially, multinationals must relocate regional headquarters to the kingdom by year’s end in order to access lucrative government contracts in 2024. So far, at least 70 firms have committed to relocate regional offices to the Saudi capital
  • Saudi Arabia is making other moves to attract wealthy expats and investors too. For instance, the kingdom reportedly plans to soon relax property ownership laws for foreigners.
  • Various factors complicate Saudi ambitions. Despite reforms, the kingdom still features many restrictions, with its minority western expat population usually living in isolated compounds. It also remains a complicated place for international businesses to operate, which saw the American cinema giant AMC exit the kingdom in January 2023 after it lagged competitors.
  • The UAE also continues bolstering its position. A new unemployment insurance scheme took effect in January 2023, while Dubai also temporarily scrapped its 30% tax on alcohol sales in 2023.
  • However, the UAE will begin taxing business profits for the first time in June 2023 — at 9% for profits exceeding approximately $102,000. Other GCC countries also feature corporate tax, including Saudi Arabia's 20% levy on foreign-owned firms. 
Alternative Scenarios:

Scenario 1: Dubai endures a damaging expat exodus.

Living costs continue soaring and foreigners leave in droves in 2023. Simultaneously, neighbors including Saudi Arabia and Qatar expand efforts to attract professional expats, investors and entrepreneurs with new incentives. The result is a diminished business expat community in the UAE. 

Yet, the UAE remains a dynamic economy and offers a cosmopolitan lifestyle that Saudi Arabia still lacks. It will remain the preferred regional destination for many expat professionals and high-net-worth individuals for the foreseeable future despite becoming more expensive. 

Scenario 2: Dubai’s real estate market continues surging in 2023.

The UAE’s property market stays red hot and continues breaking records. That sees rents and apartment prices rise unabated, pushing living costs to new heights in 2023. 

However, there are signs the real estate market overall may stabilize — although it’s unlikely property prices will ease in 2023 amid persistent demand and undersupply. Higher interest rates could also finally begin to influence the market in the coming months. 

Conclusion - Most Likely Scenario:

Dubai continues growing more expensive as its economy evolves. Some expats leave amid rising living costs, positioning Gulf neighbors to potentially enjoy modest inflows from those seeking similar lifestyle amenities at a lower price point (although some may just move to Abu Dhabi instead). Yet, sticker shock won’t dampen Dubai’s appeal for many, including growing numbers of high-net-worth individuals. Meanwhile, Saudi Arabia’s efforts to lure multinationals will push the UAE to adapt further. From reopening quickly during the pandemic to embracing crypto and welcoming wealthy Russians, the UAE government continues proving adept at manipulating current affairs to its advantage. Expect that to continue. 

Contributor Background:

Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.

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