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Real estate pricing and rentals in Dubai have calmed down and stabilised amid stringent property and banking regulations by the government. While this maturity and slower growth are evident in the mid to upper range of housing, the luxury segment appears unaffected. There is massive potential within this segment, as the recent spate of ultra-luxury project launches in the UAE show.
Several reports already indicate growing demand for luxury residential property among high-net-worth individuals (HNWIs). The Global Luxury Residential Real Estate Report by Wealth-X and Sotheby's International Realty predicts that the shift in wealth creation cycles and intergenerational wealth transfers will have a significant impact on the luxury residential real estate market, with demand emphasised in new developments. The UAE seems to be following this global trend, with a bulk of Middle Eastern millionaires residing here.
According to a recent Research and Markets study, the UAE is home to the second highest number of millionaires in the Middle East with 72,100, which means every 125th person in the country is one. And this rate continues to grow, both for the UAE and the Middle East, due to the prospering economies of the region. As per the report, the Middle East is one of the fastest-growing HNWI markets in the world. All these statistics create a favourable background for the luxury real estate sector, including investor interest from neighbouring countries. Wealth-X and Sotheby's International Realty report has also dubbed the UAE as an up and-coming luxury residential market owing to its positioning as a global economic and trade hub.
Local industry pundits and leading developers, when asked about the billion-dirham realty projects unfolding in the UAE, advise a cautious scrutiny of markets for spurious developments, keeping an eye on overambitious supply leading to a property bubble. ''We don't think there will be another 2008-scale crisis in the foreseen future, considering the fundamentals of Dubai's real estate market changed dramatically for good,'' says Ahmet Kayhan, Founder and CEO of Reidin, a real estate information company focusing mainly on emerging markets.
''Certainly overemphasis on the luxury segment is a worry, but there is still an underserved market of buyers from Dubai's demand markets such as the GCC, India, Asia and Africa who are finding it a better option to invest in Dubai than other markets.''
Location has always been deemed key to luxury developments. And this is why Kareem Derbas, CEO and Co-Founding Partner of Palma Holding, is concerned about a dilution of the UAE's luxury property label due to self-styled, high end luxury developments in mediocre locations. ''I am not worried about the launch of high-end properties in Dubai's prime locations,'' he says. ''Developers must offer special projects in such unique locations. What worries me is marketing of so-called luxury developments in second-tier locations in Dubai.'' Derbas' firm recently launched a Dh1-billion ultra-luxury project on the Palm Jumeirah, Serenia Residences. However, Derbas remains upbeat about the demand and buying sentiment for projects that offer ''genuine luxuriousness''.
With the large number of HNWIs in the region and a relative short supply of luxury property, it is no wonder UAE developers are making the most of the demand from the region and elsewhere. Kayhan believes Dubai, Abu Dhabi and Doha remain at the epicentre of the region's luxury property landscape, with demand from local and international end users as well as investors, particularly from Asia and Africa.
Derbas says Serenia typifies the demand from ''a mix of both local residents looking to enjoy an exclusive beachfront lifestyle in Dubai [and] international clients looking to own a beachfront holiday home in Dubai''.
Christie's third International Real Estate Index, released in May this year, shows Dubai as a new entrant among the top ten cities in the 2014 Luxury Index, joining traditional hubs like London, New York, San Francisco, Sydney and Paris. The index assigns luxury rankings to the year's top ten performing cities based on overall prices and relative luxuriousness of a market, as well as an evaluation of the growth in demand for luxury property.
Beating Miami and Toronto, Dubai ranked eighth in the index, recording the highest percentage of international and non-local buyers (75 per cent) and a solid number of luxury listings relative to its population, owing to a continued inventory entering the market.
Despite having made it to the top ten, industry experts believe there is still ample room for growth as far as pricing is concerned in Dubai and the UAE overall compared to major global cities. ''Dubai is still at the lower end of the spectrum when it is compared with markets such as Hong Kong, Singapore, London, Paris, New York and even Mumbai,'' says Kayhan. ''Median sales price of a luxury apartment across Dubai is around $4,000 (Dh14,691) per sq m, while it's north of $6,000 in other comparable global cities. But one of the most important points in Dubai is the attractiveness of the rental yields, which average around 7 per cent for apartments versus a 3.5-5 per cent mortgage cost, on a solid currency pegged against the US dollar, that is by itself already a very straight offering in a no-tax ecosystem.''
Rental yields aside, the mid- to long-term prospect of investing in Dubai property is a lot more attractive than in other countries. ''Dubai is still one of the best places in the world to buy property,'' says Dr Ravi Pillai, Chairman and CEO of RP Group, which recently launched RP Heights, a billion-dollar upmarket development in Downtown Dubai. ''Compared to other major global cities like Hong Kong, London, New York and Mumbai, prime property in Dubai is far more affordable. Investors can get much more value from their purchase when they buy a house in Dubai, which is why it is one of the main reasons people, even foreigners, buy here.
''If buyers are in this for the mid- to long-term, then the prices per square foot, which are 25-75 per cent below prices in the aforementioned cities, provide compelling value for the long term.''
But the question remains: will demand for niche luxury residential property be sustained? Developers believe there are a number of reasons for luxury projects to continue to remain popular, the most prominent being Dubai's affordability compared to other global markets, its positioning as a destination and gaps in the property market.
Derbas says the location of a luxury property will always add to its appeal and iconic status, noting that Dubai has a number of good locations for such projects. He notes that location was one of the main considerations in the development of Palma's Serenia project, which is located on the Palm Crescent. ''Firstly, land on the Palm Crescent is extremely exclusive,'' he says. ''It is beachfront. It has panoramic views over the calm seas of the lagoon to one side and sights of the blue sea and the iconic Burj Al Arab on the other.
''As they say, rule number one in real estate is location, location, location. Secondly, our research showed that there was a gap in the market. There was no development on the Palm Crescent that was 100 per cent residential. We wanted to create a serene beachfront environment for residents without the need to mix with hotel guests on a daily basis.''
Kayhan, on the other hand, believes the positioning of Dubai as a travel destination and land prices will dictate future trends in the luxury property market. ''Supply of land is controlled closely, which favours a luxury project versus an affordable one when it comes to numbers,'' he says, adding that the emirate's ability to accommodate millions of people at its airports will also have an impact.
Dr Pillai agrees that Dubai's economic positioning will influence the growth of the market, but he feels lifestyle concepts, balanced with distinguished design and build quality, will ensure enduring demand. He says this is a philosophy his company has adopted in the development of RP Heights, noting that it will ''showcase RP Global's distinct lifestyle concepts for the first time''.
Derbas says the region's economic success will continue to feed the demand for luxury property. ''For the wealthy in the UAE, owning a luxury property is one of the ways to express success and enjoy it. For the wealthy in the region, owning a luxury property in a destination that you could visit often is priceless.
''Dubai is one of these exciting destinations. Also, it is very accessible through the network of flights. People can fly to Dubai in class and free of hassle on the spur of the moment. That is a key catalyst.''
Furthermore, nearly all industry analysts and leading developers agree that the measures taken by the Dubai government to establish transparency, trust and professionalism have encouraged genuine demand for property, even in the luxury segment. Dr Pillai says the marginal drop in sales and prices in Dubai's secondary luxury market earlier this year was largely due to the regulations put in place by the government last year to contain any inflationary and speculative price hikes, as well as stabilise the market.
''A rise in property transaction [fees] and the UAE Central Bank's monitoring of bank lending has certainly discouraged any speculative bubble from forming,'' he says. ''The Dubai real estate market has become hugely international with buyers including British, Indians, Saudis and Chinese. The diversity is bringing in further demand.''
Derbas believes the government's role has been more critical in establishing the infrastructure necessary for a luxury destination. ''The government has a major part in the success of luxury living in Dubai,'' he says. ''Top-quality infrastructure, world-class airline network, super-safe city, clear regulations on property ownership —the list is endless. Dubai is positioning itself to becoming one of the leading cities in the world.''
There is also a consensus among analysts and developers that the Central Bank's stringent mortgage and lending regulations are crucial in making the market more attractive. ''The Central Bank regulations are key to keep the market safe,'' says Derbas. ''They may slow down uptake of property, but this is not a bad thing. Specifically for luxury property, most of the clients we have dealt with are cash buyers.''
Dr Pillai also says that the market has been slowed down by a stricter mortgage cap on property above Dh5 million.
With the launch of several other billion-dirham luxury developments in the UAE, including the Cayan Tower, Nova Hotel Villas by Damac and the plush Al Forsan Villas in Abu Dhabi, HNWIs will be spoilt for choice and demand does not look to wane in the foreseeable future.
Source: Neha Kaul, Special to Property Weekly