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Rise of high-rise Dubai homes

dubai - Significant majority of new supply is made up of smaller homes in mid-tier communities

Real estate consultancies are reporting a staggering number of residential units to be delivered this year. While CBRE estimates 70,000 units to be handed over in Dubai between 2017 and 2019, Cavendish Maxwell forecasts that 61,000 units are scheduled to complete this year. However, they add a caveat that delays are likely to greatly reduce actual delivery.

While JLL claims 14,600 homes were handed over last year, Cavendish Maxwell puts that figure at 16,400.

Apartments will comprise approximately 76 per cent of the 2017 scheduled supply, says Cavendish Maxwell. Most of these units are expected to come up in Dubailand, Business Bay, Sports City, Jumeirah Village Circle (JVC) and Meydan City.

Meanwhile, nearly 84 per cent of the total number of units completed in Q4 2016 were apartments, with the majority of them located in Silicon Oasis and Dubailand. Other locations that saw a chunk of home handovers in Q4 2016 were JVC, International City and Al Furjan.

The heavy focus on apartments reflects how developers are finally waking up to the new reality of affordable housing.

"Existing offerings are primarily catering to the mid- to high-income groups and as the market matures, developers will need to provide products to a wider segment of the market. New launches in the affordable segment have been announced in 2016 and these are expected to be handed over from 2018-19 onwards. Developers are beginning to respond to the demand for smaller units and hence the new supply has a majority of apartment developments," says Manika Dhama, research manager, Cavendish Maxwell.

Apartments, typically sized between 500 to 1,500 square feet (studios and one-bedroom units), are sought-after by entry-level investors and cost-conscious tenants. This apartment unit size accounts for 45 per cent of all residential units in Dubai.

"Investors are keen on purchasing smaller apartments and building a portfolio where rental is affordable and tenancy almost guaranteed, providing a consistently secure income stream and low vacancy factor generally across the board in all locations, but more particularly in International City, Discovery Gardens, International Media Production Zone, Silicon Oasis, Remraam, Sports City and Motor City," observes Haider Tuaima, research manager, ValuStrat.

Impact of strong dollar
However, a stronger US dollar, relatively lower oil prices and resultant liquidity conditions have impacted the purchasing power of regional and foreign investors traditionally active in the Dubai real estate market, such as GCC nationals and buyers from countries like India, UK and Russia.
"An impact on capital inflows from countries such as India and Russia is expected in the short to medium term. However, this will likely be more pronounced in the tourism and retail sectors. Dubai's 'safe haven' status for the real estate sector is likely to continue attracting investors from traditional markets such as India, Pakistan and the UK," informs Dhama.

Weaker oil prices and the impact of austerity measures, particularly in Saudi Arabia which has traditionally been a strong market for Dubai real estate, will weigh on demand.

According to ValuStrat, an analysis of recently-released DLD data reveals that 10 out of the 11 nationalities buying Dubai property have seen a considerable reduction in investment sales value during 2016 when compared to 2015.

For instance, the total value of investments by Indians dropped by 42 per cent, UK citizens by 48 per cent and Pakistani citizens by 16 per cent. The total value invested by Saudi citizens dropped by 47 per cent, Qatari citizens by 44 per cent and Kuwaiti citizens by 22 per cent.

"The US dollar strength has a direct negative impact on inflow of foreign capital where currencies are not pegged to the US dollar. However, given that we also have a significant drop in GCC real estate investments tells us that the currency is not alone to blame. Lower oil prices negatively impact oil-dependent economies. We believe that 2017 will witness uplifts in transaction volume and value as the more cautious 'wait-and-see' investors re-enter the bottomed-out real estate market," reckons Tuaima.

New source markets
Developers are also likely to tap new source markets. While a new source market could be ex-tenants turning home owners in the affordable segment (Dh1 million and less), existing investors may be encouraged to buy more units once they feel prices have bottomed out.

"Developers have begun tapping newer markets with sales campaigns in regions such as East Asia and Sub-Saharan Africa," informs Dhama.

In terms of performance, larger units in peripheral areas with limited amenities and infrastructure have been faring worse than smaller units in developed areas with quality amenities and infrastructure. However, according to Cavendish Maxwell, prices in Arabian Ranches, Meadows and Al Furjan registered the highest 12-month declines in 2016.

"Demand for villa properties in freehold areas is primarily driven by high-income expats and redundancies and/or relocations in this segment has prompted a move to more affordable areas, thus impacting prices in established villa developments such as Arabian Ranches and Meadows," adds Dhama.

- deepthi@khaleejtimes.com