UAE property boom faces first major test after Iran strikes shake investor confidence

The property boom that fuelled rapid development across the United Arab Emirates is now confronting its first major challenge after Iranian missile strikes shook the region’s reputation as a safe investment haven. The strikes, which hit airports, ports and residential areas in both Dubai and Abu Dhabi, have unsettled investors and cast uncertainty over a market that has thrived on foreign capital. The developments come at a time when warnings about potential overheating in the property sector had already begun to surface.For years, developers in Dubai had been selling off-plan properties at a rapid pace, often clearing new project launches within hours. However, the latest geopolitical tensions have created a more cautious backdrop for demand.Data from Betterhomes shows that off-plan properties accounted for 65% of all transactions in Dubai in 2025. This means a large portion of purchases involved homes that are yet to be built, leaving that pipeline vulnerable if overseas interest weakens.Financial markets reacted swiftly. Shares of major developers in the UAE fell sharply on Wednesday, with Aldar Properties, the largest listed developer in Abu Dhabi and Emaar Properties, the company behind downtown Dubai and the Burj Khalifa, both dropping 5%. At the same time, bond prices of several major developers declined.Bond markets, an important source of funding for property companies in the UAE, have effectively closed to new issuance for the time being as spreads across the sector widened.Despite the sell-off, some developers sought to reassure investors that projects would continue as planned.“In this region we know things start quickly and end quickly and we overcome this because the fundamentals across the GCC (Gulf Cooperation Council) nations are strong,” said Ziad El Chaar, the CEO of Dar Global, the luxury developer responsible for a series of Trump-branded projects across the Gulf.“Nothing is on hold … everything is on track,” he added.Others in the industry said the immediate effects were already visible. A senior real-estate banker told Reuters that his firm had put on hold a planned capital raising linked to UAE property this week.“Investors are not thinking at this stage of investing in the region,” he said, adding that the risk premium attached to UAE real estate had become “much higher”.He also said international lenders could come under pressure to cut back on fresh lending, which may eventually force asset sales if the conflict continues.Over the past two decades, Dubai’s skyline has been reshaped by ambitious construction projects. Palm Jumeirah, once considered a bold land reclamation venture, has become a prominent luxury destination, while work is under way on Palm Jebel Ali, a larger palm-shaped development emerging from the Gulf. Abu Dhabi has also been carrying out its own transformation through steady coastal development.The property rally gathered momentum after the COVID-19 pandemic, as the UAE introduced reforms that drew wealthy individuals and investors. A tax-free environment, more flexible visa rules and economic liberalisation encouraged migrants and global investors to move capital into the country.Among those contributing to the surge were Russians relocating after the war in Ukraine, along with billionaires, family offices and hedge funds attracted by zero income tax and the country’s efforts to position itself as a global financial hub.By 2025, the UAE’s population had crossed 11 million. Expatriates accounted for nearly 90% of residents, according to official data, one of the highest proportions globally.The influx of residents and investors pushed property prices sharply higher. According to Fitch, Dubai real estate prices climbed 60% between 2022 and the first quarter of 2025. The momentum continued later in the year, with CBRE reporting residential prices rising nearly 13% year-on-year in the fourth quarter. Over the same period, residential property values in Abu Dhabi increased by almost 32%.Mohammed Ali Yasin, chief executive of Ghaf Benefits, a Lunate company in Abu Dhabi, told Reuters the real impact of the recent tensions would become clearer once the conflict ends.“The real effect on real estate should be measured on the level of demand once the conflict halts. That is where the true impact will be felt,” he said. He also noted that listed developer stocks declined alongside a broader 5% drop in the market on Wednesday.Concerns about supply had been building even before the recent escalation. Analysts at JPMorgan said last week that Dubai’s population growth may not be sufficient to absorb the 300,000 to 400,000 housing units expected to come online by 2028.Economists at Abu Dhabi Commercial Bank also highlighted the importance of overseas buyers for the market’s stability.“Foreign interest in purchasing property following the conflict will be critical,” the bank said in a note on Wednesday, pointing out that expatriates and non-resident investors form a key pillar of demand.New housing supply is expected to increase from the second half of this year and remain elevated for the following two years, coinciding with a period of heightened geopolitical tension.Ryan Lemand, co-founder and CEO of Neovision Wealth Management in Abu Dhabi, said uncertainty could weigh on property investment if it persists.“Real estate investment typically relies on stability, visibility and sustained investor confidence, all of which tend to weaken during prolonged geopolitical uncertainty,” he said.