Interest rate hikes remain a key risk to watch out for the UAE real estate sector in 2023 though it did not materially impact demand last year, brokerage firm Ubhar Capital said in its latest "GCC corporate earnings estimates" report.

Therefore, demand for residential properties could moderate in 2023, it said.

The Central Bank of UAE raised its base rate for the overnight deposit facility (ODF) to 4.4% in 2022 from 1.5% due to the dirham’s peg to the dollar.

The US Federal Reserve increased its benchmark interest rate seven times last year, reaching the highest level in 15 years, from 0-0.25% to 4.25-4.50%.

Given that residential real estate demand in UAE is more skewed toward higher-end properties, the segment may be relatively insulated from rate increases.

On the other hand, the investment properties business is likely to perform well in 2023 across retail, commercial and hospitality segments, but not at the same growth rate in 2022, due to a possible economic slowdown following rapid rate increases.

The report stated that real estate companies witnessed strong demand in 2022 on the development side of the business, benefiting from continued demand for residential properties.

Earlier this month, consulting firm ValuStrat reported that villa and apartment prices in Dubai are poised to register a citywide increase of around 7% to 10% this year due to strong demand for prime properties.

“This would mainly be driven by the prime market – villas in general. The rest of Dubai’s residential market has already reached possible price ceilings and may witness negative growth in some areas where new supply is expected,” Haider Tuaima, Director & Head of Real Estate Research, told Zawya.

(Editing by Seban Scaria seban.scaria@lseg.com)