Many parts of Dubai have seen a decline in residential property prices over the last year and the luxury segment was no exception, with prime property prices falling 3.3 per cent last year, according to Knight Frank’s Prime International Residential Index. But the decline in prices hasn’t shaken the luxury market. If anything, it has positively boosted sales volumes, which saw an impressive uptick last year.
“The prime market has seen prices soften over the course of 2017,” Taimur Khan, senior analyst at Knight Frank, tells PW. “However, in prime communities prices have not fallen as much as the wider market. Such areas tend to be well developed, long established and are amenity rich; therefore, they attract a good level of demand, which provides some support to prices.”
The total volume of transactions for the secondary/resale prime residential market last year was Dh13.1 billion, a 10 per cent increase over 2016, according to a report by Dubai-based property brokerage Luxhabitat. In comparison, the total prime residential off-plan market was worth Dh16 billion, indicating a huge appetite for pre-construction units.
About 82 per cent of secondary transactions last year were for apartments, the report said. The top-three performing areas were Dubai Marina, which transacted nearly Dh3.34 billion, followed by the Palm Jumeirah (Dh2.32 billion) and Downtown Dubai (Dh1.54 billion). These areas accounted for 42 per cent of Dubai’s secondary prime residential market.
High-end developments such as Al Barari are offering buyers fully furnished as well as shell-and-core units
“Prestige areas like Emirates Hills, Palm Jumeirah and Al Barari are still attracting high-net-worth buyers often relocating to Dubai,” says Andrew Cleator, luxury sales director at Luxhabitat.
According to Core Savills, 3 per cent of all residential transactions last year were in the luxury market. These included a 22,780-sq-ft villa in Emirates Hills that fetched Dh95 million, and a 7,762-sq-ft villa in Palm Jumeirah that was sold for Dh84.2 million.
In the apartments category, a 10,806-sq-ft unit at Volante Tower along the Downtown Water Canal sold for Dh36 million, while a 14,000-sq-ft penthouse at Bulgari Resorts and Residences went for Dh60 million. Both properties were sold off-plan at the time.
“Apartment prices per square foot across the board in prime areas range from Dh2,000-Dh2,500, compared to ultra-prime, which can trade anywhere between Dh2,500 and Dh4,000,” says Cleator. “Villa prices per square foot are typically less due to the built-up areas being substantially more, although custom builds in areas like Emirates Hills, Dubai Hills or even Palm Jumeirah can vary tremendously depending on the quality and specification of the fit-out.”
According to Ozan Demir, director of operations and research at Reidin, the average prime apartment price in Dubai currently stands at Dh2,100 per square foot, while the average for Dubai villas stands at Dh1,500.
Compared with other global hubs, prices for prime and ultra-prime property in Dubai are among the lowest — nearly 40 per cent less than in Singapore and 50 per cent less than in Moscow and Paris, according to a report by Core Savills.
Off-plan trumps resale
Unlike the trend in the mid-market segment, demand for luxury off-plan real estate is currently outstripping supply. “Off-plan products in the luxury property segment are becoming increasingly competitive with better finishes, amenities and overall entry points and payment plans — reflected in a surge in off-plan transaction activity,” David Godchaux, CEO of Core-Savills, tells PW.
Secondary stock in the luxury segment is now being negatively impacted by the robust off-plan market, especially as individual sellers are not able to match sales terms with the new stock coming within the vicinity, notes Godchaux.
“When we look at secondary market transactions valued at more than Dh10 million, 14 transactions took place since the beginning of 2018, compared to 32 in the same period last year, so we can assume that the appetite of investors for this segment has decreased over the last year,” says Demir.
For Luxhabitat, which focuses on properties above Dh5 million, transaction numbers in the luxury segment have slightly increased over the last two quarters, mainly due to sellers setting their sights lower and accepting buyer offers. “Luxury property sellers have had to bring down their prices in line with market conditions if they were serious about selling,” says Cleator.
An emerging trend within the ultra-prime luxury segment, especially apartments, is that units are becoming much larger due to client demand. Notable examples include Alef Residence, where unit sizes range from 5,000-15,000 sq ft; Volante, a 35-storey tower comprising just 45 half-floor and full-floor apartments, and 1/JBR, where apartments range from 1,900-8,700 sq ft in size and feature 10-ft-high ceiling in the living rooms.
“This concept is completely opposite to recent prime luxury developments within areas like Dubai Hills Estate or Dubai Creek Harbour,” Cleator explains. “The trend emerging in this segment has seen units reducing in size and is more in keeping with similar properties in Asian cities like Singapore.”
Meanwhile, investors in the luxury segment are becoming more value conscious, a trend witnessed in the wider real estate market. “While luxury purchasers have always been discerning, they are increasingly so,” says Alya Mahdy, commercial executive director at Jumeirah Golf Estates. “Such buyers are no longer willing to invest in off-plan with an expectation of rising valuations. Location, community, design, developer and exemplary finishing have always been key in the luxury market, but now they matter more than ever.”
Another trend is seeing more developers offering buyers a choice between fully furnished or shell and core, as witnessed in The Reserve at Al Barari, a community of 28 villas, and in Jumeirah Golf Estates’ Redwood Avenue, which consists of 47 villas.
“The response from buyers has been tremendous,” says Mahdy. “Homeowners were given a choice of 11 architectural styles and four interior schemes, exclusively designed by B&B Italia, or they had the opportunity to design their home in their own way.”
Nearly all purchases currently made in Dubai’s ultra-prime segment have been by end users looking to utilise the property themselves, and often as additional homes.
A diverse mix of buyers
According to the Dubai Land Department (DLD), more than 200 nationalities have purchased residential real estate in the 18 months to June 2017. In the luxury sector, demand is from countries such as Europe, South and East Asia, as well as North America and China, according to Knight Frank.
“We have witnessed more Europeans in recent years acquiring properties in the luxury sector compared to the past, and very recently a number of Russians have returned to the market after almost disappearing completely,” says Cleator.
For developer Dubai Properties (DP), buyers have historically mirrored the DLD’s investor pool, with UAE and Saudi nationals the top investors, followed by non-Arab foreign investors.
The company, which is behind 1/JBR, also expects new luxury projects to further raise the profile of neighbourhoods they occupy. “We are likely to see even higher rental yields for investors in these developments,” DP said in a statement sent to PW.
With this in mind, prime and ultra-prime properties may provide better prospects for investors, notes Godchaux. “Given the strong headwinds that the bottom segment may face over the next few years as a surge in supply is expected, we believe that the prime segment in core locations increasingly represents comparatively better value to acquire with a long-term investment horizon in mind.”