Why Dubai's luxury real estate still makes sense

Why Dubai's luxury real estate still makes senseImage Credit: Supplied

For the rich seeking better than average returns on assets, Dubai's upscale residential market still has got what it takes. According to the latest Knight Frank survey on cities with the highest rental gains in the 12 months to September last, Dubai was comfortably placed at the top with a 12.4 per cent increase, and ahead of second-placed Tokyo which had a 9.8 per cent gain.

Dubai's ranking came about despite the fact that rental averages for premium properties remained flat between June to September. It is the second time in as many years that the city has retained the top spot. In Knight Frank's analysis, 'prime property' corresponds to the top 5 per cent of the housing market in each city.

So, even as property sales values in Dubai pass through a correction of sorts from unsustainable highs, rentals have remained stable in the top-end of the market. This in turn has been good on investor yields.

''As against the 3 or 3.5 per cent on a premium residential investment in New York or London, and 4 per cent in Singapore, Dubai's rental yields remain locked at 7-8 per cent,'' said Hussain Sajwani, Chairman of Damac Group.

''If one goes by sales values, even after the spike in the last two years, Dubai's property sales values are one-tenth of London and New York, one-third of Singapore, and 30 per cent lower than in Beirut or Mumbai.

''That's a clear reason why property still has a long-term potential in Dubai — investors only have to learn to overlook the wild pendulum swings to the left and right that keeps happening with every major incident, the latest being the overreaction to the oil price drop.

''How else can one explain a 40 per cent drop in local stocks in four days and an immediate 25 per cent gain in two days? Oil certainly has not gone back to $100 during that time.''

According to Kate Everett-Allen, Partner for Residential Research at Knight Frank, luxury property rentals in key cities could come under pressure going forward. ''Demand is firmly linked to demand from corporate tenants and hence business sentiment,'' Everett-Allen said in a statement. ''With the global economy stuttering in 2014 business sentiment has dipped... indeed Market's Global Business Outlook Survey is now at a five-year low.

''Concerns over a renewed downturn in the Eurozone, a potential interest rate hike in the US and the UK as well as tension in Ukraine and the Middle East.''

Again, corporate tenant demand in Dubai remains strong, both from existing businesses and those that have just set up base in the city. Bentley, the UAE prestige carmaker, recently confirmed the city to host its wider regional and Asia-Pacific operations. It is not the only one. Again, this would mean increased leasing activity for prime residential locations in the city.

And that, by extension, would be enough to keep rental yields on an even keel. For investors, that's the only number that makes perfect sense.

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Source: Manoj Nair, Associate Editor, gulfnews.com


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