There are several common expressions in real estate. Location, location, location; home values always go up over time; our home is a good investment. They are some of the most often heard idioms. If we break down the Dubai real estate market into submarkets, we will notice that nowadays the properties are being classified based on hedonic attributes, such as: quality, views, age, facilities, amenities, etc., and that once very popular areas like Dubai Marina, JLT or JBR have bottomed out in the past 4 years. So, with the Dubai real estate market having reached maturity, there is one question arising: where to buy, and most important why?
Competitors in the big game, Emaar, Damac, Meraas or Azizi built several projects expanded throughout several areas of Dubai, starting with Dubai South, Bluewaters Island, Dubai Harbour, Dubailand, Dubai Hills Estate, Downtown, Business Bay, Dubai Creek, or MBR City, all offering a full spectrum of facilities and luxury. At the moment, Arabian Ranches, Burj Khalifa District and Downtown Dubai are the IT locations to invest in, and projects such as Vida Residences Dubai Mall, Dubai Harbour and Emaar Beachfront are the hottest spots for investors. But how do we know that they will stay that way? At the end of the day, Dubai’s real estate market is not only driven by the supply-demand dynamics, but also by the economic development which will affect investors’ sentiment, there are no guarantees.
Further down, we will analyze how location affects the pricing, the capital movement and appreciation and prospects of capital turnover.
Burj Khalifa District vs. Business Bay
While these two areas are within walking distance from each other, the data from Reidin shows a ratio of 60% to 40% difference in prices. In the sales transactions that took place in the last 3 months, Downtown Dubai sold for 5,202 USD/m2, while Business Bay saw a median price of 3,018 USD/m2, which made the latter win in the number of transactions closed with 233 sales to 150 sales near Burj Khalifa.
If we compare Arabian Ranches, Sports City and Al Furjan, we notice no notable difference in sales prices with 2,668 USD/m2 in Arabian Ranches, 2,854 USD/m2 in Al Furjan and 2,904 USD/m2 in Sports City. Walking further down in the affordable segment, if we compare JVC to JVT, there will be a slight difference in prices, with JVT selling for 1,875 USD/m2 and JVC for 2,321 USD/m2.
Bluewaters Island is ready to welcome its first visitors and residents and many investors have shown interest, and as expected the prices are as high as Dubai Eye, with 6,454 USD/m2.
But with so much variety, high returns promises and so many good locations, what are the main metrics that real estate buyers should look at when deciding in which property to invest? Taking into consideration that residents may pour their entire savings into a home and mortgage it further.
- The aforementioned location: access to highways, schools and hospitals is important, while at the same time waterfront developments have gained momentum in Dubai.
- Herd behavior & bubbles: if everyone is buying real estate in a certain area, check what the underlying reasons are.
- Debt-to-income ratio: A standard owner-occupied home (buying a house to live in) should not have a debt-to-income ratio of more than 36%.
- Capitalization (Cap) rate: an important number to consider because it is an estimate to the potential return.
- Price-to-income ratio: the comparison of a median household price to the median household income.
- Price-to-rent ratio: the median home price to annual rent in a market.
- Future development: what developments are planned for the area which would positively or negatively impact the value of your investment property?