Dubai’s luxury home market becomes more competitive as property values fall
▶ Attractive rental rates and a slower property market offer more residents the chance to invest, writes Deepthi Nair
Dubai has become more competitive in the global luxury home market after property values fell by 3 per cent in the first half while Seoul had the biggest price gain during the period, Savills said.
Residential prices for topend homes fell by 0.5 per cent globally due to coronavirus-induced challenges that affected property markets, Savills’ latest Prime Residential World
Cities Index report showed. “Global uncertainty was already weighing on prime residential markets in 2019, with modest falls of 0.3 per cent recorded in the last six months to December 2019,” said Sophie Chick, head of Savills’ World Research department.
“Combined, the annual average price movement turned negative for the first time since 2009, down 0.8 per cent for the year to June 2020.”
The pandemic has dealt a huge blow to the world economy, affecting sectors such as aviation, tourism, shipping and property.
Governments have introduced sizeable economic stimulus packages to help companies and citizens survive the crisis.
In the Middle East, Dubai continued to record a drop in luxury property prices and rents due to oversupply, similar to a few other cities around the world, Savills said.
However, with values averaging $560 (Dh2,056) per square foot, the city offers international investors relatively high yields for investment-grade properties, compared with global peers, according to Swapnil Pillai, associate director of the Middle East research department at Savills.
Dubai property transactions in the top end of the market are expected to improve in the second half of this year.
“The recently relaxed loan-tovalue norms and lower bank lending rates should support a recovery in activity in the second half of the year, while a limited pipeline of new project launches should result in a positive long-term outlook,” Mr Pillai said.
Mumbai recorded the steepest decline in luxury property values during the first half, with a 5.8 per cent drop.
In the Asia-Pacific region, Sydney, Hong Kong and Bangkok
also registered declines as the effects of the health crisis weighed on the market, Savills said.
Land-scarce Hong Kong, which was the world’s most expensive city in terms of overall luxury property prices last year, dropped by 4.2 per cent in the first half.
In the US, Los Angeles recorded the largest price fall in the first six months of the year, down 4.7 per cent.
“The city has been badly [affected] by the pandemic and unemployment rose to 20.6 per cent in May, up from just 4.6 per cent in February,” the report said.
New York also fell by 1 per cent, due to the economic effects of the virus and excess supply in the luxury home market that has driven values down over the past few years.
Only nine out of the 28 cities featured on the global index recorded growth in luxury home values in the first half, buoyed by strong domestic demand and limited supply.
Seoul, Moscow and Berlin were the three cities with the biggest increase, the report showed. The South Korean capital recorded a 5.5. per cent average gain, continuing an upward trend that began a few years ago.
The Russian capital was buoyed mainly by domestic demand, while the coronavirus-induced drop in oil prices and the declining value of the rouble drove investment into the property market.
In Europe, the best performers were Berlin, Amsterdam and Paris with a six-month price growth of 3.1 per cent, 3 per cent and 1.2 per cent, respectively.
The three European capitals had high demand and a supply shortage, which boosted home prices even during the pandemic.
In China, pent-up demand and credit easing from the Chinese central bank caused home values to increase in cities such as Shenzhen, which recorded a marginal price rise of 2 per cent.
Beijing had a minimal price fall of 0.2 per cent.
Looking forward, Lisbon, Moscow, Amsterdam and Seoul are expected to have the strongest growth in the second half but a lot depends on how their economies perform, Savills said.
Stay-at-home restrictions and an increase in the number of employees working from home due to the Covid-19 pandemic have led many people in the UAE to upgrade to bigger homes as they take advantage of lower rents and property prices.
According to industry experts, this is the perfect time to negotiate with landlords and brokers for a good deal when it comes to a bigger property.
Average annual residential rents in some areas of Dubai declined by 15 per cent in the second quarter, according to property company Chestertons, which forecast further reductions in the second half.
Meanwhile, average apartment prices in the emirate fell by 9.8 per cent on an annual basis, while villa prices declined by 7.1 per cent, according to the consultancy.
“There has been a significant surge in customers searching for villas and town houses for sale in Dubai,” says Dan McGeachy, director of secondary sales at Aqua Properties in Dubai.
“Being stuck at home during the lockdown, people have realised how important it is to have more space, a private garden or a pool. Such properties are nowadays better priced and offer good value in upsizing – both for sales and leasing.”
According to brokers, there has been increased interest in districts such as Dubailand, Palm Jumeirah, Emirates Living and Dubai Hills from customers looking to move to bigger properties.
The National spoke to three people in Dubai who have either rented or bought bigger properties during the pandemic.
From an apartment to a villa in Dubai Marina
Andrew Cummings, 38, rented a 139-square-metre two-bedroom apartment in Beauport Tower on Marina Promenade in Dubai Marina for four years. In March this year, he took advantage of the cheaper rents to upgrade to a 372-square-metre three-bedroom villa in the same area.
The British co-founder of property broker LuxuryProperty.com, Mr Cummings wanted more space for his wife and four-month-old daughter. While these villas had caught his eye when he moved to Dubai in 2016, they were out of his budget then. So, when rents dropped, he jumped at the opportunity.
“The size of my current lounge, dining room and kitchen alone is bigger than my previous apartment. I also have a massive terrace and the villa is located right next to the pool. Plus, I am staying in a premium area,” he says.
“To get this space, I didn’t have to move out to The Meadows or Arabian Ranches. Moving to this villa, we didn’t feel like we were cooped up during the quarantine.”
Mr Cummings pays Dh195,000 in rent for the villa but says it would have “cost
Dh300,000 in annual rent three to four years ago”. He was paying Dh170,000 in rent for the furnished apartment in Beauport Tower.
“I didn’t view any other properties. I got what I wanted. Villas within [Dubai] Marina are very rare. If I didn’t get this property, I would have probably moved to a villa with a garden, probably in The Meadows,” he says.
Mr Cummings did not ask his landlord for incentives because he knew he already had a good deal.
“If I had signed the lease two months later, I would have pushed for more sweeteners. But I already have a good deal. It’s the lowest priced villa in this area.”
Noting that the market has never been better for a buyer or a tenant, Mr Cummings plans to buy a villa with a garden and pool next year.
“If you are a buyer, think about your long-term plans. Work with good agents, find the right property in good condition and if you do some renovations, you can add value. If you are a tenant, negotiate hard. There is a lot of supply. Long-term tenants are valuable to landlords,” he says.
Bigger is better in Dubai Hills Estate
The stay-at-home restrictions during Covid-19 made Gary Allen, 28, a Dubai resident from Britain, realise the importance of having bigger premises for his family.
The property broker with Allsopp & Allsopp lived with his wife and son, 3, in a 175-square-metre three-bedroom apartment in Al Andalus, Jumeirah Golf Estates, for a year. He paid Dh100,000 in rent each year.
“The stay-at-home rules made us realise that with a lot more cooking and entertaining going [on] in the house, we needed outdoor space. If we are going to be working from home, then I thought it would be good to make the move now and stay put for the next five years. We had our lease renewal in April and extended it by a few weeks, which took us through to June,” he says.
In June, the family moved to a 251-square-metre five-bedroom villa in Dubai Hills Estate with an annual rent of Dh125,000.
Before settling for this property, Mr Allen viewed another property in Arabian Ranches and a town house in Jumeirah Golf Estates.
“I opted for this property because of the location and the layout. It is a corner unit. Dubai Hills Estate ticks all the boxes for a family and the quality and finish of the properties is great. It is very affordable as well,” he says.
Mr Allen, who has been in Dubai for three years, says rents have become cheaper due to the pandemic. Apart from the good deal on the villa, he also got a 50 per cent discount on rent during the two-month lease extension in his previous apartment.
Being a property broker did not make it easier for him to find and move into a new home, he says.
“There was a lot of demand in the area. I did everything myself and did not go through an agent. But [with] hindsight, I would rather have paid the 5 per cent broker fee than go through the stress of doing everything myself,” he says.
He advises people looking to for a bigger home to use a good agent, find the right location and negotiate, when possible, “with the landlord or the movers”.
Tenant turns home owner in Dubai Marina
Marcus Richards, a British architect in Dubai, has lived in rented properties for the past 22 years. On average, he has spent Dh100,000 each year. Shocked at how he had spent about Dh2.2 million on rent in the emirate, he decided to buy a home instead.
Mr Richards lived in an 88-square-metre apartment for five months in Liv Residence, Dubai Marina.
When a two-bedroom apartment measuring 136 square metres in the same building was put up for sale at a price of Dh1.9m, he did not want to miss the opportunity to become a homeowner and bought it in May.
“People living in Dubai long term realise that they pay a lot of money in rent. My apartment is also a good investment because I can make income on it when I am not in town. People who don’t take the risk today are the biggest risk takers,” he says.
Mr Richards says similar units had been listed for Dh2.3m to Dh2.4m in the past few months, so he knew that Dh1.9m was a good price. Although he could have purchased a similar property for about Dh1.3m, it would have been in an older building, while buying a villa in The Springs or The Meadows meant that he would have had to increase his budget to Dh4m.
“During 2002 to 2003, units like these in Dubai Marina would go for Dh5m to Dh6m. You have to take advantage of this market when a lot of people want to sell or move their funds elsewhere,” he says.
Mr Richards says if a unit in a new property comes up for sale in Dubai Marina, it’s a “no-brainer for a prospective buyer”.
If you are a buyer, think about your long-term plans. Find the right property and if you do some renovations, you can add value ANDREW CUMMINGS Dubai resident