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Dubai is a preferred destination for many high-net-worth individuals looking for holiday homes. Its safe haven status, high-class lifestyle, superior infrastructure and tax-free benefits make it a much sought-after city to reside in. Adding to its appeal is the range of luxury residences that continues to grab the attention of local, regional and global investors.
According to Knight Frank's Prime Global Cities Index — Q3 2014 report, prime residential prices fell by a marginal 0.2 per cent quarter-on-quarter. However, they were still up by 2.6 per cent from a year earlier.
Realtors view the price correction as a reflection of a maturing market; its reaction to demand and supply mechanisms. People are now buying wisely based on actual needs instead of rushing into purchases, as had happened earlier, which is a healthy change, say experts.
About 18 months ago, development activity in the city had started rising significantly. As a result the market witnessed rapid heating with the launch of several new projects, and increasing demand eventually led to hikes in per-square-foot rates.
Dev Maitra, CEO of Dubai-based Indigo Properties, says the market entered a phase of unsustainable growth in this period. Hence cooling measures were implemented to keep demand in check and strengthen the market. The UAE Central Bank tightened mortgage norms, reducing the amount available for buyers, while the Dubai Land Department raised the property transfer fee to 4 per cent, minimizing flippers' appetites to buy and curbing speculation.
All this resulted in reduced demand, says Maitra. ''In a maturing sector it's essential for the market to grow at a sustainable rate. We don't want it to grow by 20-30 per cent and then fall by 50 per cent.
''Moreover, the yield on these assets globally is seen at 2-3 per cent net with taxes but Dubai still allows people to enjoy yields of a good 8-10 per cent.
''Anything above a double-digit yield, however, is considered unsuitable. What we have today is a sustainable growth rate of between 6 and 8 per cent.''
Even though the market has reacted to the restrictions with a decline in property prices, Maitra sees it as a good thing. ''It is a temporary correction led by a well thought-out government strategy and macro economics, and not because of recessionary pressure or catastrophe, which is positive for the market,'' he says.
As per the Knight Frank report, a moderate fall of 5-10 per cent can be expected in prime property prices this year, and in the near future, there is little to indicate that residential transaction volumes in the luxury segment will make a strong jump. However, the report adds that limited supply and growing demand from Indian buyers should act as a buffer.
What's in demand?
There is still good demand in the market for luxury properties, says Anoushka Chalkley, Sales and Leasing Manager at SPF Realty, a real estate company in Dubai. ''Some of our exclusive luxury projects sold out very quickly last year. Their average price was Dh8 million.''
Both high-end villas and penthouses are seen as status symbols and are popular among premium investors who understand that a lot of businesses will be coming to Dubai due to Expo 2020. ''These investors are savvy business people who are either going to purchase high-end properties for personal use or buy in bulk for rental yields or capital gain,'' adds Chalkley.
''Sometimes they choose to hold their cash to move around and spread it out between investments, and hence look for [various] bank mortgages when purchasing property.
''But if the borrower is cash-rich and has a successful business, there should be no problem even with a revised cap.''
When buying premium property, buyers' lifestyles play a major role in influencing their selections. Rajiv Ghanekar, Associate Director at Fine and Country Real Estate in the UAE, points out that in Dubai, the demand for luxury mansions is far more than that for penthouses.
''The demand for premium homes can visibly spiral upwards if the mortgage cap is elevated to Dh12 million-Dh15 million in the luxury segment,'' he says.
The current mortgage cap for properties worth more than Dh5 million is 65 per cent for expats and 70 per cent for UAE nationals.
Furthermore, luxury villas in the city are more popular because of the wider choice in location and the availability of themed communities, adds Ghanekar. Then there are larger built up spaces and the option of bigger plots for leisure and guest entertainment that also attract buyers. Other factors such as lower maintenance and service fees, ease of customization and privacy add value as well.
Ghanekar says that luxury can be interpreted in different ways, all of which are correct from buyers' perspectives. He cites a few examples: luxury could mean an intelligent space — a smart home equipped with modern technology and remote-controlled systems. Luxury could be about lifestyle — for instance, a gated community with a limited number of mansions overlooking a polo field or a premium golf course.
It could also be about space — customised villas or penthouses with generous outdoor space, open-air decks for entertainment, a basement large enough to accommodate a gym or private theatre and fleet parking arrangement. Or it could mean convenience — master planned communities in the city designed taking into account the smallest needs such as having supermarkets, pharmacies, community centres, recreation facilities, schools, nurseries and clinics in close proximity.
No matter which of these categories it falls under, the luxury property is a scarce commodity, which will experience steady demand. Maitra says, ''It's encouraging to see so many people move to Dubai. Last August, around 562,000 new residence visas were issued. Even if we consider that a large part of these were for blue-collar workers, at least 20 per cent will be for white collar executives. It is these people who will look at luxury properties.''
Good value for money by Nichole Nikoliovich
Compared to other global destinations, Dubai is still considered good value for money in terms of prices per square foot. According to Knight Frank's Prime International Residential Index, Monaco is the most expensive city to invest in a luxury property with $1 million (Dh3.67 million) enough only for 15 sq m of space.
In Hong Kong $1 million will buy you 20.6 sq m of luxury property, while in Shanghai you can buy 46.2 sq m of luxury space for that amount.
In this regard, Dubai is possibly one of the best cities to invest in luxury property — $1 million will buy you 146 sq m of luxury property.
The report further states that the emirate is ideal for both everyday living and holiday homes.
Read more on why luxury property still makes sense in Dubai
Source: Hina Navin, Special to Property Weekly