Dubai land shortages push property prices even higher

March 29, 2024, 4:24 AM

Plots of land on Dubia's coveted Palm Jumeirah are selling for as much as AED 1 billion — Plots of land on Dubai's coveted Palm Jumeirah are selling for as much as AED 1 billion

Land prices have quadrupled
20% property price rise expected
Villa prices above 2014 peak

A shortage of undeveloped land in Dubai has caused an unprecedented rise in the cost of plots, setting the stage for further increases in the city’s already high property prices.

Experts note that in some areas land prices have nearly quadrupled over the past year, compelling developers to rethink their strategies to capitalise on this trend.

Ahmed Abou El Naga, head of institutional sales at Metropolitan Group, which operates three real estate agencies, tells AGBI plot prices in Dubai have “skyrocketed,” highlighting a 300 percent increase in areas such as Jumeirah Village Circle, which caters to the mid-income sector.

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“The surge is unevenly distributed,” he says. “While certain areas may have reached their peak, others, like Business Bay, are witnessing a supply squeeze.”

Mohit Bhojwani, sales consultant at Property Zone Real Estate, points out a significant rise in demand for plots, especially in prime locations.

“Pearl Jumeirah, which I consider among Dubai’s top luxury villa clusters, has seen prices tripling in the last two to three years,” he says.

“The market is experiencing a growing scarcity of land. There’s high demand for land for custom villas, for either leasing or flipping. It’s the same trend in Dubai Hills Estate.”

El Naga points out that this shortage is enabling sellers to continually hike prices, exploiting the high demand.

Master developers, who previously might have sold plots, are shifting strategies, he says. “Now, with the booming market, they’re opting to develop the plots themselves, maximising their profits and potentially influencing the availability of prime land.”

This surge in plot costs poses a substantial challenge, El Naga says.

Developers aim for land expenses to constitute roughly 30 percent of a project’s total value. Plot prices per square foot are intended to be about 25 percent of the off-plan sales price per square foot, he explains. But when plot prices double, so do sales prices, he says.

Rizwan Sajan, founder and chairman of Danube Group, which owns Dubai’s Danube Properties, says he sees no signs that the real estate market will cool this year.

He predicts a “minimum” 20 to 30 percent increase in property prices across all segments in Dubai’s prime locations for 2024, attributing this outlook to escalating land costs.

“I am purchasing plots, and I can see the price increase for the same plots over just a few months,” he says.

According to Sajan, some plot prices have jumped 40 to 50 percent in under six months, alongside a 10 percent rise in construction costs.

Olga Pankina, chief operations officer at real estate company Whitewill, says the surge in land prices is in line with demand for property. “This reflects the confidence of investors and developers in Dubai’s economic growth and potential for returns,” she says.

Plot prices are swayed by factors including location, size, intended use and scarcity.

A 19,000 sq ft plot in Jumeirah Village Circle is on the market for AED 32 million. A 24,077 sq ft plot, designated for a mansion on Dubai’s “Billionaires’ Row” on Jumeirah Bay Island – a haven for the ultra-exclusive with just 127 villa plots – is listed for a price of AED 200 million.

At Palm Jumeirah the stakes are even higher. A plot to accommodate seven signature villas commands close to AED 1 billion.

In the past year Dubai’s residential property prices surged at the fastest pace in nearly a decade, and villa values surpassed the peaks previously reached in 2014.

This upturn in the city’s real estate sector has been fueled by higher oil prices, the implementation of the government’s 10-year golden visa scheme, and the arrival of high-net-worth individuals – defined as those possessing liquid wealth exceeding $1 million.

The UAE has removed the AED1 million minimum down payment previously required to be eligible for a golden visa via real estate investment, which is anticipated to further stimulate the property market.

A real estate analyst, who declined to be named, says developers are “in a race to grab plots” as land banks dwindle. “There are hardly a few plots left in some areas, so everyone is fighting over them.”