Dubai’s red-hot property market is showing early signs of cooling, with home prices declining for the first time since the pandemic-driven boom began. A mix of geopolitical tensions, softer foreign investor demand, and seasonal factors has begun to test the resilience of a market that had surged more than 70% since 2020, raising questions about the sustainability of its rapid growth.

According to a report by Bloomberg, the home price index by ValuStrat dropped 5.9 per cent in March compared to the previous month, marking the first decline since 2020. Despite this fall, the index returned only to levels seen six months ago.

Dubai, part of the United Arab Emirates, has attracted expatriates and foreign capital due to its tax-free status, leading to a price rise of over 70 per cent since 2020 after a long slump. The rally is now being tested by geopolitical tensions. Gulf Arab nations faced missile and drone attacks from Iran’s retaliation for US and Israeli actions, with a fragile ceasefire starting earlier this month. 

Residential sales value in Dubai fell nearly 20 per cent to 37.2 billion dirhams ($10.1 billion) in March from February, according to REIDIN, which analyses Dubai Land Department data, the report said. The number of transactions dropped from nearly 16,000 to about 13,000. Betterhomes and ValuStrat mentioned that the March decline may have been worsened by the Eid Al-Fitr holiday and heavy rainfall in the UAE. 

Dubai has aimed to become a less transient city by offering long-term golden visas, attracting foreigners to settle and supporting market resilience.

Property companies listed in Dubai are recovering from declines after the war began on February 28, the report added. 

Dubai’s real estate market was near default in 2009 after a slump triggered by a collapse in the off-plan market, where homes are sold before construction. This segment, accounting for nearly 75 per cent of transactions, saw sales value fall about 13 per cent in March, according to REIDIN.

Expatriates make up over 85% of the UAE population. Realtors in London, Monaco and Marbella report increased interest from wealthy Middle East residents seeking property abroad.

However, developers may face higher building material costs if the Strait of Hormuz remains closed longer, said Danube Properties founder Rizwan Sajan. Prominent developers have held investor calls to address concerns about liquidity.

New projects continue, with developers like Emaar, Azizi Developments and Danube launching schemes and offering incentives such as lower upfront payments to support demand.

Imran Farooq, CEO of Samana Developers, said sales are slower but still happening, with buyers from within the UAE and countries like Egypt and India.