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Following the rapid acceleration of property prices last year, values are now rising moderately, with apartment prices in Dubai increasing by 6 per cent and villas by 3 per cent, according to a report by Asteco.
Rental prices for a one bedroom apartment in Dubai Marina currently average Dh110,000 per year, a 45 per cent increase from last year, according to Asteco.
With high rents and a stabilising residential sales market, Thomas Bunker, Investment Sales Consultant at Better Homes Dubai, sees the rental market as a lucrative alternative to regular savings.
''Some want to buy property simply to rent it out,'' says Bunker. ''You could make a 4-5 per cent yield, where in the bank you would only make 1-2 per cent.''
While short-term investment opportunities still exist, there is a consensus that the market is now more suited to long-term investment in rental property or alternative leasing accommodation. Imran Ellam, Senior Residential Consultant at Better Homes Abu Dhabi, believes house prices have stabilised, with Abu Dhabi achieving marginal increases, although not those ''we've seen in the past two years''.
With prices predicted to rise sharply as the World Expo 2020 approaches, both Dubai and Abu Dhabi offer a number of attractive property investment opportunities.
Culture Village, Dubai
Scheduled for handover next year, Culture Village is one of the few places in Dubai where Bunker believes prices should increase significantly in the coming months. Although short-term property investment offers less reliable returns than 18 months ago, Bunker believes the development has a lot more to offer.
''If anyone came to me to ask for advice, I would point them to the D1 Tower in Culture Village, because I still think that prices are undervalued there,'' says Bunker.
Located in Old Dubai's Dubai Creek waterfront, the D1 Tower will be an 80-storey residential building and part of a bigger development that includes the world's second Palazzo Versace hotel. The Dubai Properties project is also set to feature shopping and entertainment facilities.
With studio apartments at D1 Tower currently on the market for around Dhl.45 million, the waterside development is a viable long-term rental investment option.
The Greens, Dubai
With its low-rise architecture and convenient location near Shaikh Zayed Road, Dubai Marina and Dubai Media City, The Greens is a popular development offering a number of amenities, including coffee shops, banks and restaurants. With easy access to the Dubai Metro, the family friendly community features a variety of accommodations, ranging from one-bedroom to four-bedroom properties.
With one-bedroom apartments averaging Dhl.28 million. The Greens is a more affordable alternative to Dubai Marina and Downtown Dubai. It also delivers more value per square foot.
''The apartments tend to be higher than the ones delivered now,'' says Bunker. ''For example, a one-bedroom apartment tends to be around 800 sq ft, but if you look at The Greens, they're 950-1,000 sq ft. They're good for everybody.''
With annual rents for a one-bedroom property averaging Dh90,000, investors can expect a yield of around 5 per cent.
Business Bay, Dubai
With apartment prices increasing more than 10 per cent on average in the past year, despite being still largely under construction, Business Bay is an auspicious investment proposition, especially with its proximity to the Burj Khalifa and The Dubai Mall.
''Its right in the Downtown Dubai area - when people come to Dubai, the first place they always look for is Downtown,'' says Bunker. ''Business Bay is also being developed entirely by Emaar - that's always really important to people.''
Although most of the roads and infrastructure have been completed, Bunker is cautious about recommending the area to short-term investors due to the uncertainty of rental income levels, as additional buildings are completed.
''If you're an investor and you know that a lot of other towers are launching, how is that better for you?'' he says.
Yet, for long-term investors, Bunker believes Emaar's reputation and the geographical location will make Business Bay an attractive, durable investment.
Palm Jumeirah, Dubai
Following the 2009 economic crash, prices on the Palm Jumeirah returned to pre-crisis levels in a matter of months - a testament to the island's popularity. One of Dubai's most prestigious addresses, property values here are now 20 per cent higher than their 2009 peak and one bedroom apartments are on the market for an average price of more than Dh2.5 million.
Rental prices for a one-bedroom property on Palm Jumeirah can fetch more than Dh150,000 per year, the same rate for a three-bedroom villa at JVC. With a number of new developments in the pipeline, including the Dhl.2-billion Nakheel Mall and various luxury resorts, the world's largest man-made island is only set to improve in the coming years.
Motor City, Dubai
Developer Union Projects is planning a number of new projects in Dubai Motor City, including new residences and retail outlets. Located next to Arabian Ranches and home to the Dubai Autodrome, Motor City is one of the best examples of an area in Dubai that's likely to see prices rise significantly for long-term investors, according to Bunker.
''In terms of growth, you can see what a difference there has been, even between now and last year, in terms of how much retail and how much traffic is going on there,'' says Bunker. ''Over the next four to five years, when the World Expo 2020 becomes more of a reality for people, I can only see the area improving.''
Located near Shaikh Mohammad Bin Zayed Road, the development has strong infrastructure, including large retail outlets and restaurants. One-bedroom apartments at Motor City are on the market for less than Dhl.3 million, offering substantial savings compared to Dubai Marina and Downtown Dubai.
Jumeirah Village Circle, Dubai
With one-bedroom apartments available for an average Dh850,000 and offplan studios on the market from Dh400,000, Jumeirah Village Circle (JVC) offers strong value for money.
''If someone's looking for an entry-level property and doesn't want to spend a lot of money and doesn't mind taking a long-term investment of more than five years, then JVC is a good option,'' says Bunker. ''The place will probably take off in the next few years.''
Conveniently located along Al Khail Road, the development is only partially finished. There are currently issues with the convoluted nature of access to some parts of the development and some sections of JVC also lack amenities, such as shops, restaurants and entertainment centres that are found in other more expensive developments.
But with above-average rental increases of more than 8 per cent in the past quarter alone. JVC offers a safe long-term investment in affordable housing with increasing rental yields.
Al Raha Beach, Abu Dhabi
With a rental market where sensibly priced apartments are leased in just one or two weeks, the capital's Al Raha Beach development also offers attractive rental yields of between 6.5 per cent and 7.5 per cent.
Ellam says the waterfront location and high-quality standard of construction make the development an obvious investment choice. He believes a two-bedroom property should fetch an average rent of around Dh150,000 per year.
Unlike Dubai, the capital is only beginning to offer freehold ownership to foreigners, although Saadiyat island and Reem island provide alternatives for non-residents looking to invest in the city. Furthermore, the popular gated community of Al Reef Villas is a cheaper alternative to Al Raha Beach.
With the significant expansion of the Abu Dhabi International Airport and ongoing cultural developments, including the Guggenheim Abu Dhabi and Louvre Abu Dhabi on the horizon, Ellam believes the growing international profile of the emirate can only benefit property prices.
Click on Dubai's rental surge and find out how it's becoming the fastest among prime cities
Source: Peter Feely, Special to Property Weekly