Brookfield Properties’ new luxury project in Dubai is yet to be constructed, but bidding wars are already underway. Wealthy buyers from around the world are vying for apartments on the Solaya waterfront development, pushing indicative prices for penthouses above $24 million.
Bidding is restricted to uber-rich house hunters who must prove they have the cash by submitting a 1 million dirham ($272,000) check just to make expressions of interest, according to promotional materials seen by Bloomberg News. Only a select number are allotted apartments while unsuccessful bidders get refunds. The process, run jointly by Brookfield and Dubai Holding, offers a rare look at the inner workings of one of the world’s hottest property markets.
More luxury homes were sold in Dubai in recent quarters than any other city, including New York or London, real estate consultancy Knight Frank estimates. The surge in purchases recalls the emirate’s pre-2009 boom that was eventually upended by a sharp downturn in the so-called off-plan market, where homes are sold ahead of construction.
Consumers from London to China have similarly taken hits when investing in property before it’s built, but the crisis in Dubai was severe enough to push the emirate to the brink of default. Yet, that pocket of the market now underpins the wider real estate boom in the Gulf city.
Off-plan transactions account for nearly 70% of all deals in the emirate as buyers from Europe, Asia and the Americas flock to buy second homes. Values for luxury houses — typically those that cost more than $10 million — have surged by 145% since 2019, Knight Frank says. In recent years, Dubai’s government has introduced measures to protect buyers, but big investments by international purchasers mean any shakeout in the city’s market property would reverberate worldwide.
Ajay Singh, a broker at La Capitale Real Estate, said he submitted two checks for 1 million dirhams each on behalf of an Emirati and a Spanish bidder for Solaya’s three-bedroom apartments, the most expensive of which are going for about $12 million. “There is no guarantee they will be allocated apartments,” he said, adding that the money will be refunded for the bids that don’t succeed.
In the years leading up to the 2009 crash, thousands of buyers in Dubai took out loans and bid on multiple homes to flip them, but many failed to keep up on payments amid the global credit crisis. That left developers with hundreds of unfinished projects and no money to complete them. Thousands of expatriates fled the city in the aftermath, some abandoning expensive cars at the airport.
While the most recent surge has started to prompt warnings from analysts, global buyers are betting on a string of measures introduced by Dubai to safeguard investors. Developers must now fund land purchases upfront, while payments by purchasers are parked in escrow and released only as construction progresses.
Unlike 2009, demand these days is driven by end-users and those seeking vacation homes rather than short-term flippers, according to brokers and developers — suggesting a more stable market.
Still, risks remain. A sharp market decline precipitated by anything from a global economic downturn to regional turmoil could cause buyers to lose money if even some developers can’t complete projects. A substantial decline in oil prices in a region still reliant on the commodity might also hurt sentiment.
In a recent report, UBS Group AG sounded a note of caution. “Dubai’s bubble risk has surged since 2022 amid an economic boom, leaving the market looking increasingly overheated,” analysts at the firm wrote.
To be sure, the city remains below UBS’s “high” risk category that includes Miami, Tokyo and Zurich — and the firm stressed two potential offsets in Dubai: Rental yields remain elevated, and home values are still well below levels seen in other global cities.
That relative affordability stems from years of declines preceding the current surge, and means that prices in the emirate are about a third of New York and London on a per square foot basis, according to Knight Frank.
For ultra-prime properties, supply still lags demand, according to Taimur Khan, head of research for the Middle East and Africa at real estate firm JLL. In all, third-quarter transactions in luxury homes surged 24% — 103 deals, with a total value of $2 billion — Knight Frank estimates.
The city’s latest property surge began in 2020 when its handling of the pandemic and liberalization of residency laws fueled an influx of expatriates. Bankers and hedge fund traders arrived in droves, while rich Russians who came after the invasion of Ukraine and buyers seeking respite from higher taxes in the UK all helped propel the rally.
Many buyers flock to the off-plan market due to the relative ease with which they can enter the market by paying in installments without always needing to line up 20% down payments, said Prathyusha Gurrapu, head of research at the property consultancy firm Cushman & Wakefield Core. “While there is a lot of supply coming in, there are strong demand drivers underpinning that supply,’’ she said.
During the frenzied buying that preceded the 2009 crash, brokers could be seen crowding around the offices of developers, jostling for a chance to drop in a check as flippers raced to buy units. This time round, buyers have to jump through more hoops and many developers have limited the ability of investors to flip properties during construction.
Mahdi Amjad, founder of Dubai-based ultra-luxury apartment developer Omniyat, says his firm works with a network of 2,000 brokers worldwide with direct connections to ultra-rich buyers from Tokyo to Los Angeles.
A viewing of the plans for the most expensive properties is provided only after a client has been vetted and pre-selected with proof of funds, he said. Those people are then given the chance to bid on the property.
When a sale is agreed, Omniyat assigns staff from a unit called Bespoke. That business works on customization to ensure each home conforms to the individual requirements of the buyer who has shelled out millions, Amjad said. He has a lot of luxury towers under construction, but Dubai's property boom is also driving demand for his high end offices.
Dubai is a city that caters to those with an eye for opulence. Solaya, for instance, will include nine ultra-luxury buildings with 234 beach-front homes. Each penthouse will have a private lobby, a dedicated elevator and a large terrace complete with an infinity pool. Brookfield is partnering on the project with Dubai Holding, a firm controlled by the emirate’s ruler.
Potential buyers express interest through their representatives and penthouses are allocated by invitation only, according to Singh, the broker at La Capitale Real Estate. Singh and other brokers say buyers typically pay 60% of the apartment’s cost during construction, and the rest when the project is handed over. Brookfield and Dubai Holding declined to comment.
Off-plan sales were a common feature of the luxury London apartment boom in the first half of the previous decade. But some investors who put down deposits before homes were completed ended up having to flip their contracts for a loss as prices sank. The phenomenon has retreated in London as that market has cracked.
Meanwhile, China’s pre-sales system has been widely blamed for fueling excess supply in the sector. It contributed to a debt pile-up for developers, eventually leading to an epic slowdown that’s dragged on for more than four years.
Developers in Dubai seem to have learned from the past. Many have attempted to build financial cushions for themselves to ensure they can complete construction even amid market shocks.
Omniyat, for instance, has issued $900 million of Islamic bonds this year and set up a $100 million private credit facility. Sales have been on a tear, doubling every year for the past two years.
It has more than 40 billion dirhams worth of projects under development or planning and has recently started sales on a second ultra-high-end office tower to cater to wealthy businessmen looking for luxury offices. Like Dubai’s other developers, the firm hopes for a soft landing in the event of a slowdown.
“Are we going to see this extraordinary level every single year? I don’t think it is going to be sustainable forever of course,” Omniyat founder Amjad said. “But I think it’s a phenomenal accomplishment for the city.”
