Population growth likely to counteract the impact of new supply and maintain stable housing demand.
Dubai: Following five years of rapid property market growth, analysts are forecasting a period of price moderation as new supply enters the market.
However, they remain optimistic that even if prices soften over the next 12 to 18 months, the emirate’s steady population growth will help absorb the surplus relatively quickly.
Moody’s Ratings expects a modest decline in developer sales and mild price pressure in certain segments, though market fundamentals remain intact and systemic risks appear contained.
The shift comes after a record 2025, when Dubai registered over 270,000 real estate transactions worth Dh917 billion. Off-plan activity dominated the market, making up roughly 72% of residential deals, while transaction volumes in the first half of 2025 rose 26% year-on-year, according to Dubai Land Department data.
Apartments most exposed, villas more resilient
Analysts note that price movements are unlikely to be uniform across property segments.
In our view, the most likely outcome is a mild softening overall rather than a deep correction. Price developments will vary significantly across market segments. We expect small declines in the apartment segment, particularly affordable studios and one-bedroom units in areas where supply is increasing most sharply,” said Lisa Jaeger, Vice-President Senior Analyst at Moody’s Ratings.
“By contrast, we continue to see price growth in the villa segment, though at a slower pace than in recent years, reflecting more resilient demand and tighter effective supply.”
The divergence highlights shifting buyer preferences toward larger homes and established communities, even as mid-market apartment clusters face heavier delivery schedules.
Supply surge to test momentum
Moody’s forecasts around 180,000 residential unit completions in Dubai between 2026 and 2028, roughly 60,000 units per year, compared with an annual average of 30,000–40,000 units over the past five years.
Lisa Jaeger, Vice-President Senior Analyst at Moody’s Ratings, said the market is facing a sizeable wave of new supply, but not an uncontrolled oversupply.
“Our base case is not a disorderly oversupply, but rather a significant supply increase that may slow price growth and moderate transaction activity,” Jaeger noted. She added that population growth will be key in determining how smoothly this pipeline is absorbed.
“If Dubai’s population continues to grow around 6% per year, as it has over the past two years, this level of new supply could be absorbed relatively quickly. However, we expect population growth to moderate toward historical levels of about 3% per year. At that pace, Dubai would need around 40,000 new units annually to keep supply and demand broadly balanced and prices roughly stable over the longer term,” she said.
The gap between new residential completions and structural demand suggests that pricing power may weaken in certain areas, particularly high-density mid-market communities.
Matthew Green, Head of Research at CBRE MENA, noted that transaction volumes remain robust, with 2025 figures showing nearly 20% annual growth. Data from January 2026 also reflected continued momentum, driven primarily by off-plan activity. However, he expects moderation through 2026, especially in rental markets facing large delivery volumes.
“We expect more moderate growth in sales volumes and values through 2026, but overall demand is likely to remain elevated,” Green said. He highlighted the strong appetite from foreign investors, attracted by Dubai and the UAE’s tax-free environment, favorable demographics, and solid economic prospects, which will continue to support long-term housing demand.
Developers cushioned by strong backlogs
Despite expectations of slower new sales, rated developers appear shielded in the near term due to robust backlogs and pre-sold inventory, which will help maintain cash flow and stability as the market absorbs the upcoming wave of new supply.
Developers cushioned by strong backlogs, but smaller players remain exposed
“The developers we rate generally have very strong revenue backlogs, typically equivalent to two to four times their most recent annual revenue,” said Lisa Jaeger, Vice-President Senior Analyst at Moody’s Ratings. “As a result, even if new sales slow sharply, we do not expect a material negative impact on revenues or credit metrics for most rated developers over the next one to two years.”
Revenue backlog reflects units already sold but not yet recognised as revenue, providing visibility as projects progress.
Smaller and less experienced developers, however, face greater vulnerability. “It is also important to note that smaller, newer, and less experienced developers often do not benefit from the same level of backlog and would be more exposed to a slowdown in sales and prices,” Jaeger added.
Financing shift and leverage risks
Real estate financing has evolved significantly since 2022, when the Central Bank of the UAE capped banks’ exposure to real estate at 30% of credit risk-weighted assets, reshaping lending patterns and moderating leverage risks across the sector.
“Since the Central Bank of the UAE capped banks’ real estate exposure at 30% of credit risk-weighted assets in 2022, banks have pulled back from real estate lending,” said Francesca Paolino, Assistant Vice-President at Moody’s Ratings. Bank exposure had declined to around 18.3% of credit risk-weighted assets by mid-2025, leaving room for lending while limiting concentration risk.
“UAE banks’ exposure to the real estate sector is materially lower and better controlled than in previous cycles, which will help limit downside risks to asset quality as the market navigates an anticipated slowdown after three successive years of price increases,” Paolino added.
Developers have increasingly turned to sukuk and bond markets, issuing nearly $12 billion since 2023. “The sukuk market remains very active for UAE real estate developers and has become an asset class that investors understand and are increasingly comfortable with,” said Lisa Jaeger, Vice-President Senior Analyst at Moody’s Ratings.
Rising land prices present a separate challenge. “Primarily through the cost of replenishing land banks,” Jaeger noted. Developers acquiring large volumes at elevated prices could face increased exposure to future declines, although land generally represents a smaller share of total project costs.
Banks well-positioned to weather real estate slowdown
UAE banks appear structurally stronger than in previous cycles, analysts say. “UAE banks’ exposure to the real estate sector is materially lower and better controlled than in previous cycles,” said Francesca Paolino, Assistant Vice-President at Moody’s Ratings.
Construction and real estate now account for roughly 12% of corporate lending, while non-performing loans remain around 2.9%, supported by high provisioning coverage and strong capital buffers. This positions banks to manage risks effectively amid an anticipated moderation in the property market.
“Supply alone is unlikely to trigger a sharp correction,” said Lisa Jaeger, Vice-President Senior Analyst at Moody’s Ratings. She added that a deeper downturn would require a broader confidence shock affecting the market.
“A sharper correction would most likely be triggered by a loss of confidence, rather than by supply alone,” said Lisa Jaeger, Vice-President Senior Analyst at Moody’s Ratings, highlighting geopolitical risks or stress among smaller developers as potential catalysts.
A weaker US dollar continues to support foreign demand, while long-term fundamentals—including population growth and Dubai’s global positioning—remain strong.
The next 12 to 18 months will test the market’s ability to absorb elevated supply without destabilising prices. Moody’s base case points to moderation rather than collapse, with resilience underpinned by regulatory oversight, funding diversification, and strong developer balance sheets. How well that resilience holds will largely depend on market sentiment and demographic momentum.
