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| 06 December, 2017

UAE realty check: For homebuyers, price matters

Panoramic view of Dubai Marina bay, UAE. Image used for illustrative purpose.

Panoramic view of Dubai Marina bay, UAE. Image used for illustrative purpose.

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Where to find properties with realistic ticket value

While the rise of the middle-range housing market has empowered a much broader cross-section of buyers, it has also helped establish new benchmarks for acceptable unit sizes and total ticket value. Accordingly, industry insiders point out that the ticket size has now become critical in the decision-making process of buyers.

“People have set clear parameters wherein they prefer to buy property when their needs are met,” says Suraj Rajshekar, general manager of Rocky Real Estate. “For instance, they would buy a studio only if its total value is under Dh500,000, a one-bedder that is not over the Dh700,000-Dh800,000 price point and a two-bedder not beyond the Dh1.2 million-Dh1.4 million range.

“Developers catering to what the current market demands can sell their products easily. It is all about the correct unit size and good layout matching their desired total ticket value.”

He adds: “For example, if a developer sells one-bedder of 1,200 sq ft at Dh700 to Dh800 per square foot, the total unit price comes to Dh900,000 or Dh1 million, which is too expensive and not acceptable to the today’s savvy buyers.”

Developers are now building smaller units like studios ranging from 400-500 sq ft, one-bedders from 650-750 sq ft, and two-bedders in the range of 1,100-1,300 sq ft. The total value matters a lot these days, and buyers do not just view the price per sq ft says Rajshekar. The market for properties below Dh1,000 per square foot, however, remains the most attractive and sellable.

“People now don’t want to pay amounts of Dh1,600-Dh2,000,” Rajshekar puts it bluntly.

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While budget options are popular in Dubai, Yash Shah, director of the OBG Real Estate Broker, says luxury properties are still in demand. “There are target segments interested in both categories. However, the options available in the Dh1,000 and below per square foot segment are in all three main segments, which are apartments, town houses and villas,” says Shah.

“There is a decent amount of stock available in this segment, especially from few major developers. Targeting the World Expo 2020, the supply growth in this segment is very healthy for the property market,” he adds.

Rent to own

The lower price points have become a strong incentive for people to go from renting to owning, says Dounia Fadi, CEO of MD Properties. “As Dubai real estate matures and high supply looms, the cost per square foot has been put under pressure and is being tested. The closer we get to Dh1,000 or less, we see more potential buyers, especially end users, showing interest,” says Fadi. “All in all, these are signs of a mature market addressing the low to mid end-user needs, plus a sluggish economic reality.”

There are many options for apartments and town houses under Dh1,000 per square foot, especially off-plan projects. Fadi says there are even excellent options in some ready developments. “This segment is growing fast, wherein many new launches are also happening in this price range,” she says.

Yields

New supply coming into the market has put a lot of pressure on returns on investment (ROI). “The overall ROI has dropped in most developed communities and it continues to slide,” says Fadi. “Unless the economy picks up and jobs are created faster, then with the supply coming into the market we will see lower ROIs in all segments. Investors fast realise that buying for rental income is under a lot of pressure. Developers are now offering highly competitive rent-to-own options. Rents dropping and service and maintenance charges not coming down proportionately are causing investors to be cautious. This segment is mostly seeing end users excited about the prospects.”

Fadi further points out that while overall the market is maturing, it is doing so under very challenging economic times for the GCC.

“These are interesting times as Saudi Arabia is asserting itself to re-engineer its socioeconomic landscape and GCC countries are gearing up to impose value-added tax,” says Fadi. “Regional tensions and low oil price will continue to put pressure on UAE real estate, but Dubai has always shown resilience and does not stop investing in its infrastructure. This is a user market and a long-term investor’s game for now.”

Affordable housing expands

Imrann Nawab, director of sales at Gulf Sotheby’s International Realty, says the demand for property under Dh1,000 has pushed the developers to offer more affordable housing options. He believes a number of affordable projects actually provide good value for money for end users and investors looking for good rental yields.

“The main reason properties under Dh1,000 per square foot are trending is mainly because there are many end users now who are looking to move out from rents and purchase their own house,” says Nawab. “With low interest rates and high competition in the market, current tenants can afford their own house with their equated monthly instalment payments equal to their rent. Therefore, anyone who has the savings could get a house to themselves rather than facing increasing rent year to year.”

In Dubai, a few areas offer properties under Dh1,000, particularly Jumeirah Village Circle (JVC) and Dubailand, where massive development is under way. “The Dubailand area focuses on building more of affordable villas and town house communities, whereas JVC has many buildings that are under development,” says Nawab. “However, overall both target a large segment of those in need of town houses and villas.

“Dubailand alone has more than five huge different projects and townships such as Villanova, Nshama, Al Barari, each easily accommodating hundreds of villas and town houses. Villanova, in its second phase, launched 250 plus units, with phase one already sold out and more phases to be released. Additionally, for the last two years, Dubailand has seen one of the biggest number of units being handed over.”

Most of the big developers such as Emaar, Damac and Dubai Properties are also focusing on the area, especially the patch along Umm Suqeim Road heading towards Al Qudra. “The supply growth in this segment is constantly increasing as it’s a large patch of land, untouched and with lots of scope to build large communities with the best amenities and attractions,” says Nawab.

He adds, “The growing supply will always be lower than the demand since the demand for affordable housing is only increasing as people can now afford to buy homes, which are cheaper and larger. Moreover, the demand will increase even more once these communities mature, allowing them to experience the same lifestyle at a lower cost.”

Nawab says majority of buyers in this segment are end users and new investors taking advantage of the low prices and special payment plans. “For end users, this segment lets them own their house, whereas for investors the low cost gives them higher rental returns. This segment in general offers a higher rental return from approximately 7-13 per cent.”

Buying norms

Mario Volpi, chief sales officer of Kensington Exclusive Properties, agrees with the other property experts that the current market is very price sensitive. He believes a majority of buyers in this segment tend to be investors, although more end users are entering the market.

“The ROI varies, but a few developers are offering guaranteed returns of 8-10 per cent for between three and five,” says Volpi. “However, all buyers should ensure they read the small print of the contract, especially when the developer is offering guaranteed ROI. The reputation of the developer is key; look for what other projects the developer has completed or is currently under construction.

“If no guaranteed ROI is offered, check the location for amenities and facilities that will aid in attracting tenants for the property. The more facilities and amenities there are, the greater the chance of leasing it at a good price. Despite the lower price point, buyers still expect the basic facilities such as swimming pools, gyms, etc.”

Reporting by Hina Navin

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