In light of the sharp rise in prices last year, one has to ask how the market will behave this year. With new projects being announced almost daily, it has become difficult to choose in which area and what type of property to invest in.
Downtown Dubai has seen steady growth and has emerged as one of, if not the most expensive community in terms of price per square foot, with new projects occupying almost every available plot. Last year and early this year, several new developments were launched on the Palm Jumeirah, while delayed projects were completed. To many residents, the area represents the pinnacle of Dubai beach living, boasting some of the most exclusive projects in the region.
Dubai Marina has always been popular and buzzing with life, but with the completion of many new attractions, including a new extension to The Walk at Jumeirah Beach Residence, The Beach, it has confirmed its place as one of Dubai’s best and safest investment areas.
Wise investment
Smart investors in new communities that were not completed before the downturn in 2009 — such as Jumeirah Park, Jumeirah Village Triangle (JVT), Jumeirah Village Circle and Dubai Sports City, many of which are now being completed — are now reaping the benefit. These investors kept the property they purchased off-plan in 2008 or gambled and bought unfinished property in 2009-11. For example, properties in JVT have more than doubled in price in the past three years, while Jumeirah Park gains in value with every new addition, increasing by 40-50 per cent in the past 12 months.
These choices leave investors wondering where to put their money. There are two options for a smart investment. You can go for established communities that guarantee a rental return and will always be an easy option to sell. Or you can take a risk on low off-plan prices and wait for the property to be delivered in two or three years.
Of course, a lot of this depends on the reputation of the developer of the project. Certain off-plan properties, which have been launched less than a year ago and still have another two years to go until they are finished, are today selling for a minimum 30 per cent premium on the original price.
Meanwhile, flipping, which became commonplace in 2007 and 2008, is being seen once again, despite the measures taken by the Dubai Land Department and developers to put an end to this activity. These measures include the doubling of the transfer fee last year, which in some cases will now cost an off-plan buyer more than 8 per cent of the property’s price plus agency fees and other costs. Developers also now require 50 per cent of the property’s price to be paid before they release a no-objection certificate. These developments show that off-plan projects are a big draw for buyers.
Saturation point
However, if the launch of new projects and the completion of existing ones continue at this pace, will the market become oversaturated? Combined with the rise in prices, which means investors can only afford to buy fewer units, I believe there is a possibility for this to happen in the near future. For all of these properties to start making returns on investment, they have to be occupied by tenants paying rents high enough to account for the purchase prices.
This could be the bump in the road, as the income of average Dubai residents is not increasing in line with current real estate prices. And with tenants no longer having the same protection from rent increases after the rent cap was relaxed, it remains to be seen how the market will cope.
