As land values in Dubai begin to show signs of decline, many wonder if offplan property prices will follow suit, adjusting to the shifting market conditions. A growing sense of ‘sensible pricing’ is beginning to make its way into key asset values, which could benefit investors in the long run.
A recent report from Morgan Stanley highlighted the slowing of price appreciation in the US housing market, projecting less than 0% growth in the near future. This sudden shift in tone shows how quickly market sentiment can change when demand begins to wane after years of focusing on the scarcity of supply. Yet, analysts continue to avoid addressing the core issue—valuation—despite clear signs that both supply and demand dynamics are evolving.
In Dubai, even amidst a flurry of offplan transactions, price adjustments have been evident. Offplan prices are falling, and land prices appear to be following the same downward trajectory. Despite this, many remain bullish in their outlook for the market, hesitant to address the impact of rising supply and shifting demand. Developers, while offering enticing incentives to attract new buyers, are increasingly turning to private, more costly credit sources to maintain cash flow. 
As these adjustments start to take shape in newer communities, it is becoming clear that the strain on the market is mounting. While real estate brokers remain optimistic, there is little mention of the need to reassess valuations, particularly as land prices fall and rental yields start to drop in specific neighborhoods.
The Impact of Falling Land Prices on Offplan Pricing
As land prices continue to soften, a logical conclusion is that the ‘replacement value’ of real estate assets will follow suit. While incentives remain abundant, they cannot entirely shield offplan prices from the effects of lower land costs. As seen in previous market cycles, a fall in land prices often leads to corresponding reductions in offplan prices, especially as rental rates adjust downward in certain communities.
How Far Will Land Prices Drop?
Looking to historical trends, land prices in Dubai fell by around 20% during the 2014-2020 cycle. In the bull market that followed, prices rose significantly, reaching five times their previous levels. However, the recent cooling off suggests that the market is undergoing a correction, with prices likely to continue adjusting downward. The idea that the market is experiencing a temporary setback or seasonal shift is increasingly being called into question.
Such dramatic price increases are often followed by a period of recalibration, where prices align more closely with underlying economic factors. As the supply of new properties accelerates, developers may be forced to adjust their pricing strategies to stay competitive in the changing market.
External Factors to Consider: A Weakening Dollar and Supply Chain Issues
Compounding the situation is the possibility of a weaker US dollar, along with ongoing concerns about supply chain disruptions, which many believe are symptoms of stagflation rather than isolated issues. This broader economic backdrop suggests that the market may face further downward pressure, pushing prices lower in most residential areas as supply continues to increase.
For potential buyers, this presents an opportunity to enter the market at more affordable price points. However, for speculators and those who have already committed to high-value properties, the outlook may not be as favorable.
A Return to Sensible Pricing
Across global asset classes, the concept of ‘sensible pricing’ is gaining traction, as markets move away from excessive speculation and returns. In real estate, this adjustment is necessary for improving affordability and stabilizing markets. While the full extent of this shift may not be immediately obvious, it is clear that the days of excessive returns are coming to an end.
In boom-bust cycles, sentiment often drives decision-making, but when the market turns, adjustments are never smooth. As always, land prices will continue to dictate the replacement value of real estate assets, and the analyst community is unlikely to address these realities until it becomes unavoidable. Investors, particularly those in offplan developments, should be prepared for continued price corrections as market dynamics evolve.
