The UAE and Dubai in particular remain a strong magnet for investment and human capital alike.
Investors from all over the world are increasingly migrating in person, with their companies or both to the emerging emirate on the Gulf.
While some observers had initially interpreted this trend, which intensified from 2020 onwards, as a temporary phenomenon due to Dubai’s efficiency in coping with the so-called pandemic, the latest migration data from the Henley Global Citizens Report rather suggest that the trend will continue for the time being.
Henley & Partners conclude in their report:
“A presence in the UAE is becoming a must-have for the portfolio of every wealthy investor”.
UAE and Dubai No. 1 Emigration Destination for High Net Worth Individuals
According to the latest Henley Report, the UAE is currently the world’s No. 1 immigration destination for the wealthy, recording a net immigration of 4,000 individuals falling into the HNWI category in 2022.
In contrast, the last places in the ranking are occupied by countries that have experienced a net outflow. These are India (-8,000), China (-10,000) and Russia (-15,000).
The latter in particular allow further conclusions to be drawn about the motives of the migrants. In the case of China, the forces presumably driving emigration are tough lockdown measures as a supposedly effective means of combating the virus while Russia saw many nationals take to their heels on the new escalation of the East-West conflict.
The Invisible Fence
While Germany, Austria and France surprisingly do not appear as losers in the Henley Report so far, in our daily practice we see a large number of clients from these countries both below and above the HNWI threshold willing to emigrate.
The reasons repeatedly cited are high tax burdens, excessive bureaucracy, concerns about internal and external security, massively rising costs of living – especially energy costs – and eroding rule of law.
At the same time, the aforementioned list of troubles illustrates why Dubai appears to be an extremely attractive emigration country for this clientele.
However, considerable tax disadvantages following expatriation (exit taxation) often deter German entrepreneurs in particular from their emigration plans or delay them significantly.
The mentioned hurdles explain why investing in real estate in Dubai, setting up a business and applying for permanent residency is typically accomplished long before the official deregistration and final emigration from the European home country – a fact that may at least partly explain the alleged anomaly in the statistics.
Influence on Dubai’s Real Estate Market
The observed strong influx of buyers, some with substantial budgets, is accompanied by a corresponding increase in demand for real estate in Dubai. While the upper, especially luxury price segments of Dubai real estate initially benefited disproportionately in their value development in the first phase of the cycle for real estate that began in 2020, the price upswing is now also affecting properties in the middle and lower price segments.
In comparison to the first, strongly speculation-driven boom phase up to 2008, the current cycle is largely fuelled by immigration and the resulting real demand for housing.
Whereas the market-spike of Dubai`s first property cycle was revolving around an overspeculation on off-plan properties, we now see a paragidm shift with real demand for houses and flats ready to occupy immediately.
Real Demand Dominates (“Availability is king”)
Market data as well as our daily experience clearly shows that immediately occupiable properties in Dubai are transacted at significant premiums.
In addition, average rental prices in Greater Dubai – despite effective tenant protection measures – are increasing at a higher rate than property purchase prices, leading to an increase in the average achievable rental yields and further supporting the above thesis of the dominance of real demand.
Also, it is noteworthy in this context that the volumes of properties sold both in the off-plan and the completed segments have shown considerable growth in the past 24 months.
Specifically, 12,304 properties changed hands in March 2023, representing an increase in transactions of around 160% compared to March 2021 (source: Propertymonitor). At the same time, the numerical ratio between unfinished and finished traded properties remained essentially unchanged.
Programmed Population Growth
According to the 2040 Urban Master Plan, Dubai’s population is expected to grow to 5.8 million by 2040 – an increase of over 60% compared to the current population of approximately 3.6 million.
However, the forecast of the 2040 Urban Master Plan is based on an annual population growth of only 2.85%, a value that is rather conservative for Dubai.
In fact, the actual population growth observed in the seven-year period between the end of 2015 and 2022 stands at a staggering 5.5% p.a (source: Dubai Statistics Centre) emphasising that population growth – and equally the demand for new real estate in Dubai – could turn out to be significantly higher than the 2040 Urban Master Plan projection.
In any case, an increase in the emirate`s population that is even approximately in line with the forecast will have to lead to a significant growth of the city`s urban area. While it is foreseeable that the aforementioned urban development will see the emergence of completely new city centres, it also seems prudent to assume that properties in established locations such as Dubai Marina, Downtown Dubai and Dubai Hills will see considerable price increments.
Conclusion
One should not make the mistake of interpreting the currently observed migration phenomenon as temporary.
Dubai lives innovation and breathes entrepreneurial spirit. From the dredging of Dubai Creek to enable maritime trade in the 1950s, to the expansion of Jebel Ali Port and the airports, to the creation of a centre of excellence for the blockchain or crypto industry: Dubai has a tradition of facing competition, promoting growth industries and thus growing both qualitatively and quantitatively.
It`s for this reason that Dubai is once again booming under the influx of people and investment, while the majority of foreign observers – due to a lack of systematic analysis – seem to fail to understand why.
As a matter of fact we are witnessing the break-up of an (at least) 80-year-old world order dominated by Western forces, bringing with it significant shifts in power in the political and economic realms.
In this environment, the Gulf states are increasingly emancipating themselves from the political dictates of the Western sphere, turning their focus to new partners in Central Asia and the Far East.
As a champion of positive change and against the backdrop of tremendous political and economic upheaval, we see Dubai well on its way to becoming one of the world’s most important logistics, financial and trading centres within the next few decades.
It goes without saying that Dubai’s further rise also holds undreamt-of opportunities for far-sighted real estate investors.