Dubai offers homebuyers strong value even as bubble risks remain, says UBS

Dubai continues to offer strong value for homebuyers, despite elevated bubble risks indicated by a UBS report. The city's high rents make homeownership more appealing, even as its bubble index score increased to 1.16 from 1.09 last year, placing it alongside Miami, Seoul, Geneva, and Lisbon in the elevated-risk category. Only Zurich and Tokyo were deemed at high risk.

Despite the risks, Dubai remains a relatively attractive option compared to renting, according to UBS. The report highlights the contrast between stretched valuations and the emirate's affordable housing market. Inflation-adjusted home prices grew by just 0.4% annually in the second quarter, while real rents fell by 4%. UBS gauges property bubble risks using criteria such as decoupling of prices from incomes and rents, as well as imbalances in the real economy, including excessive lending and construction activity.

Existing tenants are likely to benefit from the pause in price growth and potential price concessions during home purchases. Despite high mortgage rates, Dubai remains an affordable housing market, with a skilled worker needing only five years of income to buy a 60 square meter apartment near the city center, compared to 11 years in London and 15 in Hong Kong. Dubai ranks just above Toronto and Miami in the UBS study of affordable housing markets.

The future of Dubai's property market is expected to be balanced, with structural advantages such as its strategic location and status as an international business hub remaining intact. A recent 5% to 10% adjustment is anticipated due to the Iran war, but a rapid recovery in market sentiment and price expectations is also possible if the geopolitical environment improves.