Dubai’s construction market is preparing to make a pivotal shift next year as the emirate’s focus shifts from real estate towards public infrastructure projects such as Dubai Metro’s Blue Line, which is expected to be tendered and move into construction next year.

The expected shift was highlighted in the Dubai government budget statement for 2024, which was released on 6 November.

In the statement, Abdulrahman Saleh al-Saleh, Director General of the Department of Finance (DoF) for the Government of Dubai said: “Despite the completion of many strategic projects, the activation of the public-private partnership law, and the development of project financing through long-term financing means the government has allocated 8 per cent of total expenditures to construction projects. This sends a strong signal to the private sector about Dubai’s determination to continue developing its infrastructure and delivering more strategic development projects.”

Overall spending for Dubai government entities in 2024 has been set at AED79.1bn ($21.6bn), which means AED6.328bn will be spent on construction. This is a 34 per cent increase on the spending planned for 2023, when 7 per cent of AED67.5bn was allocated to construction.

While there has been a significant increase in construction spending planned for 2024, the total still falls short of the budgeted spending set before the pandemic. In 2020, there was AED7.698bn of spending planned and in 2019, there was AED9.2bn of spending planned.

Over the past two years, the Dubai government and its government-related entities (GREs), which include property developers Emaar Properties and Nakheel, have been most focused on the real estate sector and, more specifically, residential projects that are funded by off-plan sales.

According to regional projects tracker MEED Projects, the Dubai government and its GREs have awarded $9.8bn of construction and transport contracts since the start of 2021, with $6.8bn or 69 per cent of those being for the construction of buildings sold offplan.

The resurgent property market with resurgent offplan sales has enabled Dubai’s construction sector to have its best year in 2023 since 2017 and is on course to nearly double the total value of contract awards recorded in 2022.

The strength of the offplan market was best demonstrated in late September when hundreds of home buyers queued overnight to buy villas on the Palm Jebel Ali, which has been on hold since 2009.

The strong market demand meant that by early November, there had been $17.8bn of construction and transport awards in the emirate, putting it on course to surpass the $18.1bn of awards made in 2018, while still sitting lower than the $23.5bn of awards made in 2017, when the market was in the midst of an infrastructure spending spree ahead of Expo 2020.

The prospect of more government infrastructure spending in 2024 comes as questions arise over whether Dubai’s real estate boom can be sustained. While real estate prices keep going up, in the fourth quarter of this year, data has been released that suggests growth may be slowing. CBRE’s latest report on the Dubai residential market says that in October 2023, the number of transactions in Dubai’s residential market totalled 6,407, which was a drop of 23.6 per cent compared to the previous year.

Most important for the construction sector, which relies on building new projects, the report also said that over the same period, off-plan sales fell by 57.2 per cent. Secondary market transactions grew by 29.5 per cent. Previous cycles have shown that a correction can either be fast or slow. In 2008, induced by the global financial crisis, there was a sudden collapse in prices, while in 2016, following the late 2014 drop in oil prices, there was a steady decline in prices that lasted several years.

Although concerns may form over the property market, residential real estate still accounts for over half of the construction and transport projects planned in Dubai. According to regional projects tracker MEED Projects, there are $74bn of projects at the pre-execution phase, which includes study, design, main contract bid, and main contract prequalification. Of that $74bn total, 57 per cent are residential projects, while another 24 per cent are mixed-use real estate projects, typically including a significant amount of residential real estate.

The mix is unlikely to change unless the project pipeline changes and other major infrastructure projects are launched. Of the pre-execution construction and transport projects that are not residential or mixed-use, only Dubai Metro’s Blue Line project is valued at over $500m with an estimated cost of $2.5bn.