Is Dubai's Real Estate Bubble About to Burst?

Is Dubai's Property Market on the Brink of a Bubble? The Situation Is More Complex Than It Seems

According to UBS's 2025 Global Real Estate Bubble Index, Dubai has been categorized as "high-risk," indicating that it has reached a level where the statistical chance of a property market bubble bursting has increased. This assessment naturally raises concerns for those who have already invested in the emirate's property market or are contemplating their first purchase. However, the reality is much more nuanced.

What Does Bubble Risk Mean?

A real estate bubble forms when prices disconnect from economic fundamentals such as wages, rental rates, or supply-demand balance, with purchases driven primarily by expectations of future value appreciation. In such situations, if buyer sentiment suddenly changes or if the market experiences an external shock, prices could drop swiftly and dramatically.

UBS suggests that there are already signs of this occurring in Dubai's market: prices have shown double-digit growth since mid-2023 and have increased by nearly 50% over five years. Although rental rates have also risen, recently, the pace of price growth has outstripped rental increases, a classic warning signal of overheating.

Local Experts See It Differently

While the figures might seem alarming on their own, local experts contend that stable fundamentals lie beneath them. For example, Dubai's population has grown by nearly 15% since 2020 and surpassed 4 million in August 2024—two years ahead of expectations. This dynamic growth naturally generates robust demand in the property market.

By 2026, the city's population is expected to increase by another 180,000, while forecasts suggest between 45,000 and 96,000 new properties will be delivered. Assuming two persons per household, supply and demand ratios could remain sustainable. Additionally, the issuance of around 50,000 new business licenses annually indicates a healthy economic growth trend.

How Is Dubai Different from Other Cities?

According to the UBS index, cities like Miami, Tokyo, or Zurich currently carry even higher bubble risk than Dubai. In Miami, for instance, prices have also risen by nearly 50% over five years, yet rental and income growth has lagged behind prices. In Tokyo, weak currency and foreign investments are driving up prices, while in Zurich, very low interest rates and strong foreign demand have overheated the market.

Dubai, however, is unique in several ways. The market is open with few regulations—there is no tax on foreign buyers or rental cap. This allows supply to flexibly respond to changes in demand. Rental yields remain attractive, especially compared to other global cities.

Investor Composition and New Trends

Cash buyers are becoming increasingly prominent in the market, reducing vulnerability to credit market shocks. Moreover, the composition of buyers is diversified: it's not just locals or regional investors purchasing, but wealthy individuals from Europe, India, Russia, and Africa seeking a safe, stable store of value instead of geopolitically unstable domestic environments.

New investment forms have also appeared on the market: luxury branded residences, waterfront developments, and even tokenized fractional ownership properties. These attract new types of investors who plan for the long term.

Risks to Keep in Mind

Despite these advantages, Dubai is not invincible. Incomes have not kept pace with property price increases, which long-term diminishes affordability and can restrict local demand. Currently, market momentum heavily depends on foreign investor confidence—if it wanes, for instance, due to a drop in oil prices or new geopolitical tensions, demand could fall abruptly.

Another warning sign is the increase in building permits: the volume is nearing 2017 levels, when the property market oversupply led to a significant downturn. Such over-construction has always resulted in price corrections in Dubai's history.

Additionally, market psychology plays a crucial role: if buyers believe that prices are no longer rising, demand could drop instantly. This is especially true for a rapidly changing city like Dubai.

Conclusion

While UBS's warning is serious, it doesn’t mean that Dubai's real estate market is inevitably facing collapse. The city's fundamentals—increasing population, business activity, diversified investor base—are currently strong. However, the pace of price increases has been too rapid recently, and if external conditions change, the market's responsive reaction could be potent.

The key question for the coming years will be whether supply can keep pace with sustainable demand and whether investor sentiment remains positive. Those entering the market now should consider not only current prices but also carefully weigh long-term trends and risks. Dubai has proven its capability to adapt time and time again—but alongside flexibility, prudent planning is indispensable.

(Source of the article based on UBS's 2025 index.)