According to recent reports from Moody’s and Fitch, two of the world’s largest credit rating agencies, Dubai’s real estate market is facing a potential correction in 2026. This prediction is primarily due to the expected delivery of around 150,000 new homes by 2027. This substantial supply is likely to create a surplus, impacting both prices and the overall market balance.
A key point raised by both institutions is the imbalance between supply and demand. While the housing supply is increasing by approximately 16% annually, Dubai’s population is growing by only about 5%. This skewed ratio puts pressure on prices, particularly in the affordable apartment segment.
Significant Increase in Housing Supply to Cause Cooling in 2026
It is primarily the smaller, affordable apartments such as studios and one-bedroom units that will be most affected. These properties are being developed in large numbers, often with smaller floor plans, where quantity appears to be prioritised over quality. A prime example of this is Jumeirah Village Circle (JVC), which alone accounts for 11% of all off-plan apartments under construction. In such areas, the price per square foot is high for the quality delivered, which could particularly trouble buyers who have overpaid for mediocre projects.
In contrast, certain segments remain resilient. Consider townhouses and villas, especially in well-located areas such as Dubai Marina and Downtown Dubai. These segments still face a shortage of supply and are primarily purchased by end-users rather than speculative investors. Consequently, demand here remains relatively stable, although no price increase is expected. Apartments in the Dubai International Financial Centre (DIFC) also form a separate category. Demand here comes from a different buyer group and supply remains limited.
Which Property Types Are at Risk and Where Opportunities Lie
The rental market shows that prime locations currently yield a net return of around 5%. At the same time, so-called distress deals are increasing. Banks in the UAE offer interest rates of approximately 4%. When you add 2% in agent fees and 4% in registration fees (DLD), an investor starts with a 6% deficit in the first year.
Notably, off-plan property costs an average of AED 2.9 million (approximately €760,000 / £650,000), while ready-to-move-in homes average AED 2.7 million (€708,000 / £605,000). This is remarkable because off-plan properties are typically expected to be cheaper to attract buyers during the construction phase. Nevertheless, investors are drawn to attractive post-handover payment plans, which often lead to excessive debt and, ultimately, forced sales.
Finally, it is important to mention that Abu Dhabi tells a different story. There, the government controls supply much more tightly, and the market is driven by end-users rather than speculators, resulting in a more stable climate.
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