Dubai’s real estate market has often defied expectations.
And the news that the emirate had set a new record in early March for the largest residential land transaction, valued at AED400m ($100m), was no exception.
The deal closed shortly after the outbreak of the Iran conflict, when multiple missiles and drones were being fired towards Dubai on a daily basis.
But, while announced to much fanfare, the news masked a sharp drop in confidence across the broader market.
Real estate transaction volumes in the UAE fell 37% year-on-year in the first 12 days of March, and 49% month-on-month, according to analysis by Goldman Sachs.
Even before the conflict started, Fitch forecast that real estate prices would undergo a correction–down 15%–during the period from July 2025 until the end of 2026 following a major real estate rally in the wake of the pandemic.
Dubai’s residential property prices surged by roughly 60% between 2022 and early 2025–a historic boom fueled by tax-free incentives, liberalized visa policies, and a heavy influx of high-net-worth individuals.
But Fitch said that the combination of weaker economic activity, reduced tourism and slower population growth will now add further pressure on both residential and commercial real estate markets, resulting in a larger correction than initially forecast.
“We have analyzed the loan books of all rated UAE banks, and corporate real estate in particular poses the biggest risk among the areas of the economy most sensitive to conflict-related spillovers,” Anton Lopatin, a Senior Director covering UAE banks at Fitch Ratings, who is based in Dubai, told Fortune.
Corporate real estate loans pose a bigger risk than other types of real estate loans given they often have longer terms (e.g., 5–10 years) and are frequently structured as “balloon” or “bullet” loans which require borrowers to pay off a massive, localized lump sum at maturity. They are typically secured by real estate, and loan-to-value ratios also increase when market prices decline.
Corporate real estate accounted for 13% of UAE banks’ total loans at year-end 2025, a figure that Fitch estimates remained at around the same level at the end of Q1 2026. Retail mortgage lending compromised around 10% of total loans.
By comparison, other high-risk areas such as tourism, hospitality, and aviation together account for less than 5% of total bank loans.
“While we do not see a big pressure being exerted on the banking sector’s asset quality for now, we think that corporate real estate loans are likely to be the main source of new Stage 3 loans if the conflict is prolonged,” said Lopatin.
“This was also the case in previous crises, including the global financial crisis and, more recently, the pandemic, which both led to a rise in Stage 3 loans–otherwise known as credit-impaired or defaulted loans.”
Off-plan property under strain:
Meanwhile, the impact of the war on the residential off-plan market, which has historically been dominated by overseas investors and the majority expatriate population, was immediate.
Off-plan deals–which accounted for 69% of sales transactions and 65% of value in Dubai last year, according to the Dubai Land Department–fell 21% month-on-month in March to 9,368 transactions, amid a sharp shift in investor sentiment.
Industry practitioners note that the market correction to date has been most pronounced in off-plan secondary sales, particularly in areas with significant new inventory. Off-plan secondary apartments are, on average, trading 10% to 15% below original values in many cases.
“Lots of opportunistic investors jumped on the off-plan bandwagon, assuming that prices would keep going up on a monthly basis, and are now super exposed,” Mario Volpi, senior sales manager at Eva Real Estate agency in Dubai, told Fortune.
“Many of them don’t have the inclination, the money, or the stomach to pay for the next instalment or the next few instalments. Buyers that are looking for distressed sales can find some good deals in that space.”
The war’s impact has been felt across all segments of the residential market.
At the end of May, sellers had cut listed prices by a combined AED2.36bn ($643 million) across 3,292 properties, according to data from LuxuryPriceDrops.com, which tracks daily price reductions on around 27,000 premium Dubai property listings.
The biggest recorded drop was for a property in Damac Lagoons–an upmarket Mediterranean-inspired villa community with 5km of waterfront space–which had dropped by–61.2%, shaving AED300m ($82m) off its value in the process.
Near and long-term challenges:
Incoming waves of new supply onto the market run the risk of driving prices down further.
Dubai’s development pipeline remains substantial, with an additional 65,000 apartments and 12,500 villas scheduled for delivery by year-end, although a considerable number are now expected to be delayed to 2027 due to severe supply chain bottlenecks.
Moody’s published a research note on 7 May in which it noted that “a sharp slowdown or reversal in population inflows would exacerbate absorption risks at a time of rising completed supply”.
In turn, this could materially affect the credit profiles of real estate developers over the coming months.
In a bid to stimulate the market and jumpstart flagging demand, Dubai has scrapped the AED 750,000 ($204,184) minimum property value previously required for individual buyers to be eligible for a two-year residency visa.
This move hopes to attract buyers at the lower end of the market and provide a demand boost in that segment.
However, the Iran conflict poses a longer-term threat to Dubai’s appeal to expatriate workers and firms looking to establish operations in the region which could deflate the real estate market.
Macroeconomic firm Capital Economics has warned that a downturn in Dubai’s real estate market would threaten the emirate’s government-related entities, most notably Dubai World which is heavily exposed to property development through its property arm Nakheel, Dubai Holding which manages one of the largest real estate and land bank portfolios in the UAE and Investment Corporation of Dubai which holds major equity in prominent master developer Emaar Properties.
Of course, it was these very entities that became synonymous with Dubai’s infamous 2009 debt crisis after borrowing heavily to bankroll a slew of ambitious real estate projects.
In its research note published in April, Capital Economics said: “The risk that severe debt problems emerge remains low for now.” It estimates that the three GREs have about $11.5 bn in debt maturing this year, which includes $3.7 bn in bonds, but that banks would likely step in to provide loans if bond refinancing was too expensive.
The severity of the 2009 debt fallout prompted the Dubai government to overhaul its real estate sector to restore investor confidence. Authorities implemented stricter regulations, increased market transparency, and established the Real Estate Regulatory Authority (RERA) to oversee developers and manage disputes over canceled projects.
“Dubai’s property market has become much more developed since the crash 15 years ago when prices dropped by up to 40-50%,’ said Lopatin. “It’s a much more mature market now with better oversight and the government would step in if they needed to because they know that investor confidence is crucial for Dubai.”
