Dubai’s property market is rising at a pace few global cities can match, but analysts say the current upswing is being driven by structural demand rather than speculative excess.

While inflation-adjusted home prices surged in 2025, drawing comparisons with some of the world’s most overheated housing markets, the emirate’s rapid population growth, diversified inflows of capital and shift toward long-term residency are cushioning it against the risks that have destabilised other cities.

Inflation-adjusted home prices in Dubai climbed to their highest level in more than a decade last year, according to UBS Group AG, placing the emirate among global cities where housing market imbalances have increased. In its latest Global Real Estate Bubble Index, the Swiss bank said Dubai recorded real price growth of around 11 per cent in 2025, outperforming most major metropolitan markets and defying the flattening trend seen globally. Madrid posted the strongest gains among cities tracked, while Tokyo also saw solid growth.

Still, UBS said Dubai’s risk profile remains below that of cities such as Miami, Zurich and Tokyo.

“The risk of a real estate bubble has increased for the second consecutive year and is now at an elevated level,” the bank said, while noting that affordability pressures and demographic constraints are far more acute in mature markets.

The central difference, analysts say, is population. Dubai’s population has grown by almost 15 per cent since 2020, surpassing four million residents for the first time in 2025. More than 208,000 people were added last year alone, making Dubai one of the fastest-growing cities globally. About 60 per cent of residents are under the age of 35, and expatriates account for nearly 90 per cent of the population — a demographic profile that continues to generate household formation and rental demand.

“Dubai’s population growth has tightened available supply and pushed rents higher,” said Claudio Saputelli, head of Swiss and global real estate at UBS Wealth Management. “Over the past five years, rent increases outpaced home price gains. More recently, however, property prices have begun to overtake rent growth as investment demand strengthens.” Despite the rally, Saputelli said price levels per square metre remain lower than in many global financial centres, preserving relative affordability.

That demand backdrop is proving critical as new supply accelerates. Market estimates suggest roughly 100,000 residential units could be completed in Dubai in 2026, reviving concerns of oversupply similar to those that weighed on prices in 2017. UBS has warned that building permits point to construction volumes approaching previous cycle peaks, increasing the risk of short-term volatility.

Developers and brokers argue those concerns overstate the risk. Historically, 30 per cent to 40 per cent of forecast supply is delayed or delivered in phases, particularly in large master-planned developments. When adjusted for slippage and matched against population growth, supply remains broadly aligned with absorption, market participants say. Any price softening, they add, would likely reflect a natural cooling rather than a systemic imbalance.

Policy has also reshaped the market’s foundations. Since 2021, Dubai has issued more than 250,000 Golden Visas, granting long-term residency to investors, professionals and entrepreneurs. The programme has accelerated a shift away from short-term ownership toward permanent settlement, anchoring housing demand even as prices rise.

Transaction data point to that change. Cash buyers accounted for about 49% of transactions in the third quarter of 2025, down slightly from the previous quarter but still elevated by historical standards, according to Betterhomes. End-users represented roughly half of transactions earlier in the year, signalling growing participation from residents buying primary homes rather than speculative investors.

“These are committed residents choosing Dubai as a primary base,” said Louis Harding, chief executive officer of Betterhomes. International demand remains broad-based, led by buyers from India, the UK, Pakistan, Europe, Russia and North America, alongside steady inflows from the Gulf and the wider Middle East and North Africa region.

That diversity contrasts with overheated global cities where price growth has increasingly decoupled from income growth and demand is driven by leverage. In markets such as Los Angeles or Amsterdam, population growth is modest and affordability constraints are tightening. Dubai, by comparison, continues to import labour and capital at scale, reinforcing demand across both rental and ownership segments.

However, UBS notes that Dubai’s housing market remains exposed to oil price swings and rising competition from regional peers. Abu Dhabi has expanded incentives for foreign investors, while Saudi Arabia plans to open designated zones to international buyers from 2026 as part of Vision 2030, positioning Riyadh as a rival destination for capital.

Even so, analysts say Dubai’s first-mover advantage, regulatory clarity and liquidity give it resilience newer markets lack. Economic growth across tourism, logistics, finance and technology continues to support employment and wage expansion, helping cap speculative excess even as prices climb.

The UBS index is designed as an early warning tool rather than a forecast of a correction. Elevated risk, the bank said, does not imply an imminent downturn, particularly in cities where demographic and economic momentum remain strong. In Dubai’s case, rapid population growth and a rising base of long-term residents provide a buffer that many global peers no longer enjoy.

As housing markets in many global cities confront slowing populations and affordability ceilings, Dubai’s risk is less about an abrupt correction than about managing success — keeping supply disciplined, infrastructure ahead of demand and policy aligned with long-term residency rather than short-term speculation, market analysts note.