UAE luxury real estate continues to draw global investors

The UAE has become the leading recipient of foreign direct investment (FDI) in the Middle East, capturing nearly half, 45.4 per cent, of all flows, worth as much as $67.6 bn, according to the latest available figures in UNCTAD’s World Investment Report. The UAE was also the best FDI performer in the world relative to the size of its economy.

This is not surprising given how much importance federal and local governments have been giving FDI in the context of its economic ambitions. As well as ensuring the basics are in place, like safety and security, the country has worked hard to enhance policies and regulations.

Public-private collaboration

NextGenFDI is another initiative encouraging entrepreneurship and collaboration between the public and private sectors. FDI growth has come across a variety of sectors, including real estate.

Dubai’s property prices are expected to grow by 9.9 per cent in 2025 (Savills), having swelled by 19.9 per cent last year (Knight Frank), thanks to the continuing influx of wealthy foreign buyers from the UK, Europe and Asia. These are attracted by new, more liberal regulations such as residency permits for retirees, as well as greater job opportunities, and lifestyle considerations.

Nearly a fifth of all homes are already valued at $1m. According to Knight Frank’s estimates, 5 per cent growth in the prime residential segment is expected this year, and 300,000 new homes are due to come onto the market from now until 2029.

Alternative investment managers have been instrumental in structuring capital-intensive deals like build-to-rent portfolios, which continue to attract institutional investors. More importantly, alternative investment managers themselves act as FDI enablers, helping channel institutional capital into the market.

One recent development is the Central Bank of the UAE’s directive for banks to exclude the Dubai Land Department registration fees and broker fees from mortgage deals. Buyers now need a larger down payment with an additional 6 per cent, approximately, on top of the 20 per cent of the property value.

We welcome this move as it is the sign of a mature real estate market attracting quality buyers who are more financially prepared, reducing the risks of default or foreclosure. For a property worth Dhs4m, for example, the new rules mean an additional Dhs240,000 which adds strain, making a case for quality buyers entering the secondary market. It brings the UAE in line with international practice (international banks have never offered this facility), where financing systems play a stabilising role.

Prime real estate to see continuing growth

I also do not believe that it will affect the luxury segment much as it is a relatively small amount of the total costs. I expect the luxury and ultra-luxury segments to enjoy continued growth for several reasons.

Firstly, several developers have been working with luxury partners on non-water-based sites, to upgrade the design and specifications, and ensure good amenities and transport connectivity. Property value here can be increased by 15-20 per cent.

The second factor is that compared with New York, London or Singapore, prices for luxury homes are lower, meaning investors can derive more value here. And the average plot size is bigger in Dubai, for both the floor (livable) and the open area (garden, terrace).

A third driver is the stable and growing build-to-rent market and the higher annual yields obtainable in the UAE — typically 7-8 per cent compared with only 3 per cent in Europe. Although buyers include high-net-worth individuals and companies, most of our international investors, about 70-80 per cent, are made up of foreign pension funds and feeder funds.

Once a player has invested in the property, which takes about three years to build, and when the rent has stabilised over four years (when 90 per cent of the property is rented), they can sell it to an institutional investor.

The GCC-United Kingdom Free Trade Agreement, which is nearing completion, should also provide a further fillip to real estate FDI in the UAE. Of course, there are no guarantees in investments, but I see plenty of upside in this market yet, for relatively low risk.

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The writer is a managing partner at Global Partners, a DFSA-regulated alternative investment manager.