For many Dubai is synonymous with luxury living, and a glimpse at the number of high-end developments both in the pipeline and currently underway indicates that this trend looks set to continue. Indeed, Dubai continues to see developers vie to create the ultimate experience in luxury living. However, the past year has seen the Dubai real estate market continue to mature with a number of developers also launching carefully targeted residential developments geared towards the 'affordable housing' sector, as an alternative to the luxury brands which are perhaps more usually associated with the Emirate. This article will start to explore the dynamic between these contrasting styles of development, as well as the potential implications for the Dubai real estate market.
It is no secret that UAE nationals and foreign investors alike have historically viewed Dubai as a secure location for high-end real estate investment. Statistics show that in 2014 the number of apartments sold above AED 5 million exceeded 350 units. According to data from Luxhabitat, Dubai’s exclusive luxury real estate brokerage, more than AED 1.35 billion worth of luxury villas valued at over AED 5 million were sold on the Palm Jumeirah last year. The Palm also saw the sale of the most expensive villa sold in 2014 at a cost of AED 58.5 million.
There is firm belief amongst developers that the city will continue to witness robust appetite for high-end projects during the course of 2015. Reports indicate that the top-end of the luxury real estate market will remain very strong, with buyers keen to identify the most elite living experiences that Dubai can offer. Some developers have commented that overseas buyers are becoming increasingly savvy in their demands and are seeking homes which provide escapism and privacy for which they are willing to pay a premium.
According to Dubai Land Department, 51% of all sales in 2014 were cash transactions, 44% involved a mortgage and the remaining 5% included categories such as “gifted land”. It will be interesting to see the figures for 2015 in light of the new rules concerning mortgage caps that were introduced in December 2014. The new rules require that going forward the loan to value ratio for buyers will be set at 75% for expatriates and 80% for UAE nationals for properties below AED 5 million. For properties above AED 5 million, the mortgage limit has dropped to 65% for expatriates and 70% for UAE nationals.
So far in 2015 we have seen a continuation of the existing trend towards luxury development, a notable example of which is the hugely successful launch by DAMAC of its luxury high-end Trump PRVT villas and mansions at its prestigious Akoya master development. Niall McLoughlin, Senior Vice President at DAMAC, comments that this follows substantial interest in the exclusive Trump Estates at Akoya, with Trump PRVT being positioned as the “jewel in the crown” of the overall development. Niall further states that during the course of 2014 there was significant global investment from buyers in their luxury living concepts – particularly serviced hotel apartment units. DAMAC has further strengthened its reputation as a luxury high-end property developer by signing deals to partner with reputed international brands, including Versace, Paramount and Fendi, on further developments.
Other luxury brands looking to Dubai include Italy’s Bulgari group. A Bulgari branded hotel and mansions are planned for the seahorse-shaped Jumeira Bay Island. This represents Bulgari’s first foray in the Middle East, following on from earlier hotel launches in Milan in 2004, Bali in 2006, and London in 2012. Similarly, Hong Kong’s Mandarin Oriental Hotel Group announced its intention to open a 200 room hotel on Dubai’s Jumeirah Beach Road, opening in 2017. This will be in addition to the Four Seasons, another 5 star hotel of similar size that opened on Jumeirah Beach Road in December 2014.
Shift in the market
As stated above, the growth in luxury brand residences can be contrasted against a backdrop of growing enthusiasm for affordable housing within Dubai. Indeed, it has been reported that Dubai Municipality plans to introduce mandatory affordable housing quotas for all new residential developments, which will inevitably contribute to the evolution of this sector of the real estate market. Many are speculating that Dubai will see a rise in home-owners linked directly to a move towards increased development of affordable housing. At the forefront of such developments is Nshama, a 750-acre Town Square development, which will feature 3,000 townhouses and 18,000 apartments. The development is anticipated to be a 10-year project, with approximately 3,000 units to be launched every year. Nshama’s target market is middle income professionals earning around AED 20,000-35,000 a month and who, until now, have typically rented due to the high costs associated with buying.
Nshama’s vision is essentially to offer high quality properties for sale at a cost that is in stark contrast to the luxury sector. Nshama aims to offer three bedroom townhouses (including a maid’s room) for sale for less than AED1 million. Four bedroom townhouses will be priced at AED1.5 million. These sales prices equate to less than AED600 per square foot - a first for Dubai. According to Luxhabitat, in 2014 luxury apartments in the Downtown Dubai area were being sold at an average price of AED3,980 per square feet. The recently announced The Royal Estates by SRK is another affordable housing development currently underway next to the Expo 2020 site at Dubai World Central and which intends to create apartments and townhouses from AED 450,000 to AED 1.6 million respectively.
It is clear that developers are making a concerted effort to introduce affordable housing options into the Dubai real estate market. There is undoubtedly a need for such housing as the Dubai real estate market develops. This need looks set to grow, particularly in the run-up to Expo 2020 which is creating further employment in the city, particularly amongst workers at whom such affordable housing is targeted. However, far from signalling a decline in interest for luxury properties, the growth in interest for affordable housing developments and the surge of new high-end developments shows that both segments should be able to co-exist and appeal to clearly differing audiences within a more varied and sophisticated market. We can expect therefore that the Dubai skyline will continue to be defined by ever increasing luxury residences and affordable housing developments in the years ahead.