Should the Middle East property market be concerned about a potential downturn in US luxury real estate?

Should the Middle East property market be concerned about a potential downturn in US luxury real estate?

We all understand that the global real estate market is certainly not immune to market shocks and is certainly affected by economic woes, wars and other geopolitical factors. 

Savvy property investors (and their advisors) must keep a keen eye on global market trends, with most international property agents releasing quarterly market reports. 

It’s a key part of my work to remain abreast of the trends, so I am interested in thinking about how a potential downturn in the US luxury real estate market might affect business here in the Middle East. 

Firstly, I believe – based on my own reading and research – that the US downturn will be moderate. Like every market, there are some areas that are overpriced, and equally others that pundits say are underpriced. A correction helps balance these outliers. 

In recent years in the US, we saw mortgage rates drop to all-time lows while property prices reached new highs. But now things are slowing, with media reports that home sales declined for 10 consecutive months as of November 2022. Home values seem to have peaked. 

I’m confident we won’t see a repeat of the 2008 real estate crash, which had global repercussions. The lessons taken from that bubble mean the average US mortgaged property owner is in a very different position today than back in the early 2000s. They have good credit ratings, solid equity and fixed-rate mortgages locked at rates well below 5 percent. 

And the price hike was driven by the changing culture we saw during the pandemic – people in the US were suddenly freed from the office and could take advantage of larger homes at better prices outside of cities. This, of course, pushed prices up, but in the boom-and-bust cycle of real estate, mortgage rates in the US doubled last year, causing a screeching halt to increased buying. 

And now the US faces market uncertainties, a tumultuous stock market and stagnating sales. In November 2022, US house sales were down 35.1 percent year-on-year, the largest drop in a decade, according to Redfin. 

While caution is the watchword, and 2023 in the US looks set to be a dull market, it will be nothing compared to the volatile, world-changing crash of 2008. 

Of course, any downturn is worth paying attention to, but as is often the case, the Middle East seems to be bucking the global trends, with Dubai’s property market enjoying a record-breaking 2022, both in terms of transaction volumes recorded at Dubai Land Department, and the highest price transactions in both rental and sales markets. 

Here in the Middle East – and especially the UAE – there are a raft of reasons why we won’t see a downturn. I believe the solid – growing – economy, and the wide range of new visa laws, some of which are attached to investment and property ownership, will ensure the UAE continues to be an attractive proposition for investors and buyers. 

On top of this, the favourable tax regime, luxury property market and the lifestyle offerings in the UAE keep it top of global property growth charts. 

While the US undergoes what most analysts are calling ‘normalisation’ of interest rates and property prices, I believe Dubai and the wider region’s property market will remain steady and stable at least throughout 2023. 

As the US experienced a rapid growth in wealthy citizens over recent years, those HNWIs may well start looking further afield to invest in a new property as a prudent part of a future-proof wealth portfolio. 

The US property downturn may actually be our region’s gain. 

In this region, while I don’t expect prices to rise too rapidly in 2023, what we are seeing is a shift in the demand for quality and a rise in the number of branded residences – two trends worth watching. 


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