Dubai Property Market Forecast 2025-2026: Sustaining the Momentum (and Navigating a Correction)
Dubai’s real estate market has been on a meteoric rise since 2022, cementing its status as a global investment powerhouse. However, as we move into 2025 and look towards 2026, the market is poised for a critical phase of adjustment. While underlying fundamentals remain robust, a significant influx of new supply is set to reshape pricing and rental dynamics, demanding a nuanced approach from investors.
This in-depth forecast provides a comprehensive outlook on Dubai’s property market, analyzing recent price trends, impending supply shifts, and the key drivers that will ultimately sustain the emirate’s long-term momentum despite an anticipated near-term correction.
1. Market Snapshot (2022 – Q1 2025): A Period of Unprecedented Growth
Dubai’s residential market experienced a remarkable surge between 2022 and Q1 2025:
- Price Appreciation: Residential property prices climbed by approximately 60% in this period, driven by a significant influx of expatriates, strong foreign investment, attractive tax policies, and relaxed social and visa rules.
- Transaction Volume: Q1 2025 maintained robust activity, recording over 42,000 sales transactions (a 23.1% year-on-year increase). The total sales value reached an impressive AED 114.4 billion (a 29.6% year-on-year increase), highlighting sustained investor confidence.
- Average Prices (Q1 2025): The average sales price of residential units reached around AED 1,597 per square foot. Overall residential prices were up 19.46% year-on-year to May 2025. Villas and apartments both saw strong double-digit growth in late 2024.
Action Point: While past performance has been exceptional, investors should be aware that the market is entering a new phase.
2. The Impending Correction: A Supply-Driven Adjustment (H2 2025 – 2026)
A key factor shaping the immediate future is a projected price correction, as forecast by ratings agency Fitch.
- Forecasted Price Fall: Fitch Ratings predicts a moderate fall of 10-15% in residential property prices, expected to commence in the second half of 2025 and extend into 2026.
- The Supply Surge: This anticipated correction is primarily driven by an unprecedented increase in new housing supply.
- Approximately 250,000 new units are scheduled for completion between 2023 and 2026.
- A record 120,000 units are planned for handover in 2026 alone, following an estimated 90,000 in 2025 (compared to just 30,000 in 2024).
- This represents an average 16% increase in supply per year (2025-2027), which is expected to outpace Dubai’s projected population growth of around 5% annually.
- “Normalizing Adjustment”: Crucially, this is viewed as a “normalizing adjustment” after an unsustainably rapid climb, rather than a systemic crash. Banks and developers are generally considered well-positioned to withstand this moderate downturn.
Action Point: Investors should prepare for a period of price moderation. This may present a strategic “golden entry point” for first-time buyers and long-term investors.
3. Rental Market Dynamics: Yields Recalibrating
The rental market, while still robust, is also recalibrating in anticipation of increased supply.
- Current Yields: Average gross rental yields in Dubai currently stand at around 6.9% (June 2025), a healthy level, though slightly down from 7.4% in H2 2024-Q1 2025. Villas typically yield around 5.0%.
- Rental Growth: While the rate of growth is slowing, rental prices are still forecast to rise by 13% for long-term leases and 18% for short-term rentals in 2025, driven by continued demand. Average annual rent reached AED 90,288 (~£19,250) in 2025.
- Future Pressure: The significant surge in unit handovers in 2025/2026 is expected to ease pressure on rental markets, potentially nudging rental affordability upward, which is positive for residents but may put further downward pressure on rental yields for investors.
Action Point: Investors should carefully analyze net yields, accounting for service charges and potential rental adjustments due to increased supply.
4. Key Drivers for Sustained Long-Term Momentum
Despite the anticipated correction, Dubai’s long-term growth fundamentals remain exceptionally strong:
- Robust Economic Expansion: The UAE economy is forecast to grow by 4.7% in 2025 and 5.7% in 2026. Dubai’s GDP is projected at 3.3% in 2025. This strong macroeconomic foundation creates jobs and attracts businesses.
- Ambitious Government Initiatives:
- Dubai Economic Agenda D33: A 10-year plan to double Dubai’s GDP and solidify its position as one of the world’s top four financial centers.
- Golden Visa Program: Has attracted over 100,000 individuals, many making substantial property investments, linking residency to investment.
- Strategic Infrastructure: Ongoing projects like the Dubai Metro Blue Line and the expansion of Al Maktoum International Airport (DWC) enhance connectivity and future capacity.
- Progressive Policies: Tax incentives (no property taxes, simple property laws), 100% foreign ownership in freehold areas, and streamlined registration processes.
- Population Growth: Dubai’s population continues to expand rapidly, projected to approach 4 million by the end of 2025 and reach 5.8 million by 2040. This fundamental driver ensures sustained demand for housing.
- Strong Foreign Investment: Dubai remains a global magnet for capital, driven by its safe-haven status, currency stability (AED pegged to USD), and business-friendly environment. Cash transactions account for a significant portion of the market (e.g., nearly 60% of Q3 2024 residential transactions were cash).
- Tourism & Hospitality: As a top global tourist destination (18.7 million overnight visitors in 2024), Dubai continues to drive demand for short-term rentals and hospitality assets.
- Sustainability & Technology: Growing emphasis on eco-friendly communities, smart homes, and PropTech innovation, appealing to modern buyers.
5. Investment Opportunities Amidst Adjustment
While a correction is anticipated, strategic opportunities remain:
- Prime Locations Resilience: Properties in highly sought-after prime locations like Palm Jumeirah, Emirates Hills, and Downtown Dubai are expected to remain more resilient to price falls due to limited supply and enduring global appeal.
- Mid-Income Housing: Demand in the mid-income segment is strong and less speculative, potentially offering stable rental yields for investors focused on long-term income.
- Off-Plan Opportunities: Developers may ease payment plans (e.g., from 70% to 50% during construction) to attract buyers, potentially offering more flexible entry points during the correction phase.
- Luxury Segment: Continues to see robust demand from High-Net-Worth Individuals (HNWIs), with ultra-luxury property sales (AED 10M+) nearly doubling in volume in 2023.
Outlook: Dubai’s property market in 2025-2026 is poised for a necessary adjustment after years of rapid growth. While a moderate price correction is expected, this is viewed as a healthy recalibration rather than a crisis. The city’s strong underlying economic fundamentals, ambitious government vision, and continuous influx of global talent and capital are expected to absorb the new supply and underpin long-term resilience and sustained growth. Investors who navigate this adjustment period strategically may find excellent entry points for future returns.
