Khaleej Times Real Estate, 03 April 2018
Dubai’s prime residential property prices have been softening, which made the emirate more economical than most of its peers around the world. However, analysts believe the prices are projected to rise, thanks to significantly lower buying costs for real estate transactions as well as influx of high-net-worth individual (HNWIs) into the emirate. It will also help absorb the new supply that will hit the market in coming years.
Referring to the latest study by Knight Frank, the experts said prime residential properties in Dubai are more economical than New York, London, Hong Kong, Paris, Geneva, Tokyo and Mumbai, among others.
The report disclosed that $1 million can buy 138 square metres of prime residential property in Dubai as compared to 25sqm in New York, 28sqm in London, 39sqm in Singapore, 41sqm in Geneva, 46sqm in Paris, 58sqm in Los Angeles, 76sqm in Tokyo and 92sqm in Mumbai. It also identified Monaco as the most expensive city in the world where $1 million can buy mere 16sqm of prime residential space.
Jason Hayes, founder and CEO of Luxuryproperty.com, says Dubai is more affordable in terms of per square metre when compared to other cosmopolitan cities for a number of reasons.
“Dubai, whilst now very much a mature market, is still a newcomer in terms of global cosmopolitan cities. Thus, the sheer volume of demand for prime residential property is significantly greater in the cities that have more established markets. The volume of demand has a significant impact on prime property values and in most cases, the supply/demand matrix is such that demand for prime residential property outstrips supply,” says Hayes.
Citing an example, he said Singapore has such high levels of demand for prime residential properties that it appears to suffer from a lack of supply altogether.
“Dubai is now, without doubt, a significant player in the global real estate market and by way of empirical evidence, we see a healthy demand for prime stock. But it must be said that the demand/supply matrix is currently sligh tly skewered towards an abundant supply of prime residential units that are available or will soon be available through the completion of several off-plan projects in the coming months, with demand not quite rising up that level.”
Another reason is that Dubai has a plethora of developable land while most other comparable cities across the globe have no such land availability, he said.
“Singapore, Hong Kong, Paris, Monaco, London and New York are fully developed and as such, prime residential development is restricted by the lack of land to develop upon. Most developments in these cosmopolitan cities are being done on brownfield sites, which tend to be very restricted in terms of design and density of build. The absence of available development land results in prime values being much stronger with there not being enough new developments to satisfy demand,” he added.
Another factor that plays key role in affordability is the cheaper land costs when to compared to London, New York or Hong Kong as this lower cost is reflected in the residential prime values.
Alexander von Sayn-Wittgenstein, director for luxury sales at Luxhabitat, noted that Dubai’s prime residential property is lower than other major cities because it’s still a new city in comparison.
“Dubai is also starting to get a lot more widespread than the other cities such as Singapore and Hong Kong which have geographic limitations. The prices per square feet are slightly lower because the overall sizes are also larger compared to other cities,” he said.
Prime properties outlook
Going forward, von Sayn-Wittgenstein sees steady demand for Dubai’s prime residential property.
“Therefore, we expect that the prices in prime locations will soon start to steadily increase in the coming years. The price fluctuation depends on the supply of units and the location. It’s difficult to put a number to this.”
Commenting on the factors which will dictate the prices of prime residential areas in Dubai, he said: “Location, location, location, quality, prestige, depending on whether the property is branded, serviced or backed up by a quality developer.”
Jason Hayes sees stabilisation of prime residential prices in 2018-19 with modest single digit growth in more established prime areas.
“The medium to long-term investment potential in Dubai’s prime residential market is strong. This is based in part on our very favourable tax regime. Additionally, buying costs for real estate transactions in Dubai are significantly lower when compared with other cosmopolitan hubs. This is another huge positive when it comes to pricing.”
Hayes also sees a significant shift in the volume of inward investment into the prime residential sector. He noted that the volume of client requirement is going to be one of the key factors dictating prime prices.
“As high net worth individual population growth increases and more and more people recognise Dubai as a place to live, work, invest and bring up families you will see prime prices appreciating in the medium to long term. I am confident that new supply will be met by increased demand and will result in residential price growth.”
Globally, the number of UHNWIs is expected to grow by 42 per cent between 2016 and 2026. Dubai currently ranks as the 25th largest city by number of UHNWIs. In the years to 2026, Dubai’s UHNWI population is expected to grow by 60 per cent. Overall, Dubai also hosts the highest concentration of millionaires, multi-millionaires ($10m+) and UHNWIs for any Middle Eastern city and accounts for 63 per cent of the UAE’s wealthy residents.
He said: “There is a very apt saying, ‘the best time to buy land was yesterday’. In terms of Dubai, ‘the best time to buy prime real estate is very much now’. Will we ever hit the lofty valuation heights of London, New York, Singapore and Hong Kong? The answer is as yet unknown, but one thing is for sure – in terms of global comparisons, Dubai is heading in the right direction.”