Real estate powered Dubai’s rise as a magnet for expats. Can its brand survive this war?

Fadel Senna/Getty Once a small fishing and pearling village, Dubai has grown to become a major financial, commercial and tourism hub in the Middle East. It is the second-largest (behind Abu Dhabi) of the seven emirates that make up the United Arab Emirates (UAE). For decades, its economic success has rested on a promise: that the city would remain stable even when the region is not. By marketing itself as a “safe haven” for the global elite, with tax-free luxury and strong security, the emirate separated its image from the volatility of its neighbours. Now, as major conflict between the United States, Israel and Iran rolls on, Dubai’s brand is under threat. Real estate development is a cornerstone of the city’s ascent – and a powerful symbol of the willingness of foreign investors to finance it. If this confidence is shaken for too long, Dubai faces a reckoning. Reliance on real estate Property has become a key pillar of Dubai’s economy. Combined, the emirate’s real estate and construction sectors contribute about 15% of its gross domestic product (GDP). Dubai has quickly become a top destination for foreign real estate investors. Its high rental returns, tax-friendly rules and open property market make it especially attractive. There are also pathways to become a resident of the UAE by investing in property.

Foreign investment in UAE real estate, especially in Dubai, made up about a quarter of the country’s foreign investment in 2022. According to the EU Tax Observatory, India, the United Kingdom, Pakistan, Saudi Arabia and Iran are among the top countries investing in Dubai’s residential real estate, commercial real estate, land and off-the-plan properties. The same figures show Australians owned 1,497 Dubai residential properties in 2022, with a combined value of US$785.2 million (A$1.1 billion). Shattered beliefs For the first time, missiles and drones have hit landmarks that define the “Dubai brand”, such as the Burj Al Arab, Fairmont The Palm and Dubai International Airport. A key question for Dubai is whether the city’s real estate sector can withstand the loss of its safe-haven status. Already, we’re seeing a sudden shift to what financial market traders call a “risk-off” mood – where investors move to safer assets. Figures from the Dubai Land Department show in the first full week of the conflict, the number of property market transactions fell by half.
This volatility was also seen in the stock markets. The Dubai Financial Market Real Estate Index fell more than 17% in the early days of the conflict.

Why Dubai is so exposed Dubai’s economy relies heavily on the confidence of foreigners. Around 90% of its residents are non-Emirati, reflecting the city’s long-standing openness to expats who live and do business there. Foreign nationals own roughly 43% of the total value of all residential property in the city. Dubai’s property sector has weathered shocks before. After steep falls in the global financial crisis of 2008, the market reportedly took 6–7 years to recover. It bounced back much more rapidly after the COVID pandemic, recovering within 12 to 18 months. However, those past events were economic or health shocks. The current crisis is a security shock. As analysts note, Dubai’s economy depends on expats providing capital and labour. If people no longer feel safe, many could leave the city. This would put the entire model at risk, because foreign confidence is what keeps businesses and investment in place. An expat exodus and property oversupply In recent years, Dubai has been a magnet for relocating millionaires. Reports now indicate a scramble to leave – including a spike in demand for private jets in the immediate aftermath of strikes. Following attacks on Iran’s banking system and subsequent threats by Tehran, Citigroup and Standard Chartered have reportedly started evacuating their offices in Dubai. Some major global consulting firms have taken similar actions. Even before the security situation deteriorated, some analysts were warning of an “overheating” property market. The conflict has erupted just as a huge wave of new residences is due to begin hitting the market. If foreign interest remains suppressed, the emirate could face a massive inventory of luxury villas and “off-plan” apartments with no buyers. What’s next? If this war continues, and so does mistrust between Iran and the UAE, the very openness that built “brand Dubai” could become its greatest weakness. International capital moves quickly, and missile and drone attacks may already be driving investors to safer markets. This war has shown stability in the Persian Gulf cannot rely on deterrence or foreign troops alone. The region must rebuild trust, reject further militarisation, and gradually remove foreign bases that make neighbours vulnerable. Once the conflict is over, a practical step would be for the Gulf states to cooperate with Iran and help rebuild infrastructure damaged by attacks from bases on their soil. Only through such regional accommodation can the Persian Gulf restore the security its economy depends on.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.