Time for a gentle pivot away from luxury real estate investments?

Investors will this time mix and match high-end homes with income-generating options

Given the surge in prices of ultra-luxury real estate in Dubai, it is of little surprise that listings have accelerated, even though we know from experience that most of these deals tend to take place off-market. The fact that listings in this space have more than doubled (in the backdrop of a historically strong dollar) is sparking a reality check as interest rates march upwards. Despite the inelasticity that this sector has to interest rates, the obvious issue remains demand and supply.

Adam Smith’s theory said that the price of a good (or asset) was given by the number of factor inputs (land, labour, financing costs, and materials) that went to produce it. When land, being the critical factor here, is available in high quantity, the price should be relatively affordable. However, as the theory of economics in real estate evolved, participants had to factor in the time taken to construct, as well as the quality of existing stock available.