House prices in Dubai are rising at the fastest pace in the world following an influx of Russian money.
High levels of immigration mean average prices in the Gulf emirate have soared by 15pc between mid-2022 to mid-2023 when adjusted for inflation, according to UBS.
The rapid growth was the steepest pace recorded out of 25 major global cities analysed by the investment bank.
Prices in Dubai grew at more than twice the rate recorded in Miami, the city with the second fastest growth.
Local agents said a flood of Russian buyers in the wake of the war in Ukraine has been a defining factor behind the boom.
Dubai has not followed the Western sanctions regime imposed in the wake of Russia’s invasion of Ukraine, meaning it is one of a few global cities that is still a safe haven for oligarchs.
Fadi Moussalli, at JLL property consultants, said: “One of the factors that exacerbated the growth is the influx of ultra high net worth Russians and also ultra high net worth Ukrainians.”
UBS said: “Residential transactions have gone through the roof.” There were 11,328 residential transactions in August, up 22pc year-on-year and the second highest monthly total ever recorded in the emirate.”
Half of residential buyers are from overseas, according to CBRE, and around 15pc of the total market is Russian buyers.
Nicholas Maclean, CBRE’s managing director in the Middle East, said: “The three largest markets appear to be Russia, India and other parts of Europe collectively.”
Mr Moussalli said wealthy Russian buyers were having a particular impact on prices. He said: “It started at the top end, with super high end luxury villas and apartments being taken up for rent or sale. Then there was a contagion effect and now it is generalised across the market, including the lower end.”
He added: “If you just walk on the beach or go to a hotel, you can see there is a big minority of Russian citizens residing in Dubai.”
Mr Moussalli said high-end shops in Dubai had been actively hiring Russian-speaking staff to court the new wealthy clientele moving into the city.
Beyond offering a haven to Russians, many people have flocked to Dubai thanks to its low taxes and the rise of remote work.
Mr Maclean said: “We’re seeing people from Europe coming here because they don’t like their current personal tax rates or because they are worried tax rates will go up over the next few years.”
Dubai has no personal income tax. The government has introduced a series of visa programmes since the pandemic with looser residency requirements, making it easier to move.
Despite the recent surge in house prices, Dubai property is still 25pc below its 2014 peak in real terms. In London, UBS found house prices have slumped by 14pc in real terms over the year to June.
John Lam, head of China property research at UBS, says the shantytown redevelopments contributed to an excess of supply, while Li says there was a failure to assess demand.
Country Garden, which narrowly escaped collapse in recent weeks, had built homes in cities where there was relatively little demand, Li says.
Across the country, she says there is now a “reality check as investors realise they cannot find tenants for the units”.
Loo says there is a lesson for policymakers across the world to avoid the mistakes made by the Chinese government.
“If there is a downturn and if policymakers want to really stimulate the economy, doing so via over-investment is probably not the right path to go,” she says. “This will lead to more severe structural issues down the road, which China is trying to unwind right now.”
Easing restrictions for first & second-time buyers
In an effort to boost demand, central and local governments have intervened to loosen some of China’s tough restrictions on property ownership.
Since 2015, the Chinese government trumpeted a mantra that “houses are for living in, not speculation” – but signalled a change in tone this summer.
Chinese leaders removed the slogan from the nation’s policymaking dogma at the end of July. Days later, China’s housing ministry announced plans to make it cheaper and easier to buy and said it would ease restrictions for people wanting to invest in a second home, according to CNBC.
Lam says the government has moved towards free market policies to shore up the real estate sector.
Local authorities have some freedom in setting their own rules but in recent weeks have started taking the lead set by Beijing.
Those who were not first-time buyers were previously required to have down payments as high as 80pc.
“Traditionally, this system has been to discourage second home ownership,” Loo says, adding that officials were concerned about speculative investment and the pricing out of first-time buyers.
The government has changed the rules so second-time buyers who do not own other properties can access the same down payments as first-time buyers. Second home owners remain subject to bigger down payment requirements.
Down payment requirements have also been lowered for first-time buyers. They used to be a minimum of 30pc of the purchase price but the floor has been dropped to 20pc.
Industry leaders have said that projects that would deliver more than 100,000 homes across the country have been prevented as a result.
A quarter of those are in “Red Wall” areas like the Tees Valley, Cumbria and County Durham, which the Tories need to hold to win the next election.
Swathes of the South and East Anglia have also been affected, with construction on hold across parts of Norfolk, Hampshire, Somerset and Wiltshire.
Homebuilders have branded the rules disproportionate, with housing contributing to just four per cent of such pollution, most of which comes from agriculture.
‘Serious concerns about the approach’
Labour had initially signalled that it would support the Government’s plans to scrap the EU-era regulations when they were first unveiled by ministers.
Lisa Nandy, the then shadow housing secretary, told the Commons last month her party would “support effective measures that get Britain building”.
But its position shifted after the proposals drew the ire of nature groups including the RSPB, which accused Mr Sunak of abandoning his green promises.
Last week, Matthew Pennycook, the shadow housing minister, said Labour had “serious concerns about the approach the Government have decided on”.
He said Sir Keir would still review the rules “with a view to addressing problematic delays and increasing the pace at which homes can be delivered”.
Builders have to submit far more supporting evidence because increased public scrutiny of planning applications has driven a surge in the use of case law in planning decisions.
Mr Brocklehurst said: “There was an unwritten social contract that used to occur between the generations, that we know we have to build housing for future generations.
“Up until the early 80s there was an acceptance of new house building. But that social contract seems to have slowly unwound and now people seem to be less willing to accept development near them.”
House price growth, which has far outstripped wage growth, has been key, Mr Brocklehurst added.
“Everybody is starting to view their house as a financial asset, as well as a place to bring up their family, and when people see it as a store of wealth, they get very concerned about anything that they imagine might reduce that,” Mr Brocklehurst said. “It has been a slow creep over 30 years, with an increased regulatory burden and changing social views.”
Edward Clarke, of Lichfields, said: “Every possible development that could affect anybody starts to get questioned much more when you’re in an atmosphere that is heavily politicised, not just between political parties but in local areas.
“Local authorities say everything has to be absolutely bulletproof before we take anything forward, just in case somebody brings up some vaguely relevant case law.”