Luxury property in Dubai remains a potent investment option

Luxury property in Dubai remains a potent investment optionImage Credit: Supplied

As Dubai's property market awakes from the summer slumber, developers and real estate firms are looking to stir up enthusiasm with new launches and project updates. At last month's Cityscape Global in Dubai, most experts and developers were generally upbeat, although the trend seems to be moving towards more affordable property options, with pundits noting a shift in market preference away from high-end luxury to value-for-money projects located in completed or almost complete developments.

''Apartment sales in the second quarter were marked by a shift towards more affordable properties witnessing sustained demand, as yields for studios and one bedroom apartments in particular remained attractive,'' says John Stevens, Managing Director of advisory firm Asteco. ''This was a scenario mirrored by villa investors where affordability has become a priority.''

Trophy assets

Luxury property, however, remains a potent investment option, asserts Khawar Khan, Research Manager at Knight Frank. He says high end property falls into a niche of its own and tend to achieve lower yields than mainstream homes. He adds, ''However, those considered super prime are often trophy assets, which high-net-worth individuals tend to pay a premium for, and are predominantly bought for their own use rather than for letting purposes.''

Research by Knight Frank earlier this year suggested that Dubai's luxury home prices actually remained resilient, even when transactional activity subsided. Some realty firms specialising in upscale property are also upbeat about their prospects.

''We have seen an increase in demand over the last couple of weeks again,'' says Alexander Von Sayn Wittgenstein, Luxury Sales Director at Luxhabitat. ''The Dubai Land Department has posted a transaction volume of Dh1.2 billion as of August 10, which is a sign that we are heading back to normal.''

Khan notes that in annual terms price growth in the prime segment turned negative in the first quarter and dropped 4.5 per cent in the subsequent three months as the level of transactions remained stubbornly low. ''As a result, luxury residential prices fell to mid-2013 levels,'' says Khan. ''However, the cumulative decline seen over the past year has been smaller compared to the wider mainstream market.''

Although Khan would concur that lower oil prices were partly responsible for the weaker sentiment, he also points to the ailing US dollar and Russian rouble, as Russians account for a notable chunk of overall buying activity in the prime segment.

Nevertheless, GCC nationals, Indians, Pakistanis, British and Iranians remain at the top of the list of nationalities purchasing luxury residential property.

''We continue to see a mix of buyers, including those located within the UAE and abroad, and buying for varying reasons, including investment, end use, or for use as holiday homes,'' Khan adds.

Growth opportunities

While Khan hasn't seen a sudden spike in buying activity by Iranians — sanctions would only be lifted gradually over the next few years - Wittgenstein has witnessed increased enquiries from Iranians in August.

''We have also seen an increase of US citizens looking for property in Dubai, hoping to get into business with Iran as soon as the sanctions are lifted,'' says Wittgenstein. ''The geographical proximity and infrastructure make Dubai an attractive location. Most of our clients are expat residents looking to buy a holiday home.''

In terms of lower oil prices, he doesn't see them affecting the market in general, despite having had two clients in the oil and gas business pulling out of a transaction at the beginning of the year. ''This had less to do with the oil prices dropping, but more that it has slumped so suddenly, which was not foreseeable,'' says Wittgenstein.

Stevens also says global oil prices, as well as sanctions on certain CIS countries that affected the pockets of high-net-worth individuals of those source markets, are affecting sales of premium properties, but he is confident the lifting of sanctions on Iran will unlock new growth opportunities.

Safe haven status

The lifting of sanctions will undoubtedly have a positive impact on the UAE's economy, with real estate certain to be a winner,'' says Stevens. ''[Iranian] investors will now be able to look at a real estate market they are not only familiar with, but one that is regarded as a safe haven, particularly from an investment perspective.''

From a developer's point of view, Mohammed Hmeid, Sales and Marketing Director at Omniyat, says it may be too soon to evaluate Iran's impact on the Dubai realty market.

''Our primary buyer base remains GCC nationals, especially [those from] Saudi Arabia, Kuwait and Qatar, in addition to our strong customer base in the UAE,'' says Hmeid. ''We have quite a large portfolio ranging from serviced apartment to mid and super high-end residential projects. So buyers invest with us for different purposes.''

Martyn Crook, Sales and Marketing Director at Al Barari, reports a rise in interest for Al Barari from international buyers, including Iranians, although he cautions it's too soon to connect it to the lifting of sanctions.

''We feel the market will pick up in the second half of the year. Our outlook for the rest of the year is positive,'' says Martyn.

''Because Al Barari is a secure investment, we have not been affected greatly, nor have we witnessed a change in our target audience's purchasing power as a result of decreasing oil prices. Al Barari has sustained pricing and value for our buyers. The development is not price-sensitive.''

Martyn says Al Barari has no plan to launch a new project this year. Omniyat, on the other hand, debuted new projects at last month's Cityscape Global in Dubai. ''We anticipate the new market we are journeying into to be an interesting addition to our portfolio,'' he says.

Hmeid is optimistic, noting that despite a degree of stability in market transactions in recent months, the first half of the year also witnessed the highest revenue in the industry compared with the same period during each of the past seven years.

''So overall, 2015 has been more than an excellent year for the real estate industry in Dubai and that has encouraged us to explore several new development opportunities across different price segments,'' says Hmeid, pointing out that Omniyat's primary focus remains on luxury projects. ''We are going to continue to raise the bar with every new project we launch. As a team, we have developed a highly refined expertise in designing and developing world-class projects, and expected cyclical patterns will not waiver our dedication to offer our best to Dubai.''

Positive outlook

While Hmeid says Dubai is feeling the impact of a dip in oil prices being a financial and economic hub in the region, the long-term prospects remain upbeat. ''The difference is that real estate is a long-term investment and our outlook for the mid and long term is very positive.''

Khan expects to see strong interest in luxury residential schemes being brought to market by developers with a history of delivering superior products, which could rival those in markets such as London and New York. ''Also, with prices in Dubai currently under downward pressure, pricing needs to be at a level which buyers consider fair value.''

Al Zorah Development Company, a joint venture between Solidere and the Ajman government, is likewise well aware of the importance of appropriate pricing. ''We understand pricing and the interplay between demand and supply; we know the type of projects that are of interest to buyers right now,'' says Imad Dana, CEO of Al Zorah Development Company, which is developing the upscale Al Zorah project in Ajman.

''We have adjusted our inventory accordingly and so far interest has remained constant and consistent with our forecast. Our feedback from the market has always been very positive as buyers understand our point of differentiation.''

Meanwhile, well-established locations such as the Palm Jumeirah and Emirates Hills continue to be popular among luxury residential property buyers, according to Khan. Asteco also refers to the Palm Jumeirah, Downtown Dubai, Jumeirah Beach Residence and Dubai Marina as among the most popular areas for high-income buyers.

''In general the Downtown Burj Khalifa and Palm Jumeirah areas are those that are still generating the most interest for luxury developments,'' says Wittgenstein. ''Dubai Marina is also still in demand but currently more for smaller units than penthouses.''

Get a glimpse on Abu Dhabi's affordable home push which is also seen stoking demand in long term

Source: Nicole Walter, Special to Property Weekly


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