Build an asset or live comfortably? This is a burning question many residents ask as Dubai’s real estate sector continues to open opportunities for a broader cross-section of the population. For a growing number of young professionals coming to live and work in Dubai, the answer seems to be a no-brainer as small-ticket units are gaining interest in this demographic.
Living in a studio is a logical choice for residents who want to build an asset but do not have the means to buy larger-size apartments.
On the other hand, the strong demand for studios in the rental market has also led to higher yields and encouraged more investors in this segment. With the current market trends, a large number of studios and one-bedroom apartments have therefore been launched by developers.
“The land permits on each plot in each community is different. However, if I were to generalise for these projects, around 50 of the building comprises studios, and the remaining is split between innovatively designed one-bedroom apartments that convert into two-bedroom apartments and conventional two-bedroom apartments,” says Rizwan Sajan, founder and chairman of Danube Group.
As Dubai continues to rise rapidly as a global destination, the cost of living in prime areas is increasing sharply as well, making smaller, competitively priced accommodations more attractive. “You need a smarter solution for living in these areas, allowing you to accommodate more in lesser space,” says Sajan, whose real estate development arm, Danube Properties, has been building projects with a sizeable number of studios. “It’s not just studios, one- and two-bedroom apartments are also drawing good demand.
“If you were to calculate the cost of acquisition based on size, then studios come at the highest price per square foot. However, since a significant portion of the population comprises working bachelors and couples without kids in the mid-segment category, the demand remains strong.”
Sajan further points out that in mature markets, the affordable housing segment retains the highest demand. However, he emphasises that this is also the most challenging part of the market because consumers looks for extra value for money, which can be difficult for developers who are trying to keep costs low.
Demand all over
Industry insiders say demand for studios is strong in all locations and across all income brackets in Dubai. However, expectations will vary depending on a buyer’s preferred area, says Mustafa Pooya, CCO of Select Group, a real estate development and investment company. In Dubai Marina, a premier community, studio buyers expect superior finish and amenities in line with the lifestyle of the area, says Pooya. It will have to be priced differently from studios in International City, Jumeirah Village Triangle or Dubai Sports City.
Studio One, a recently launched 31-story project by Select Group, is one of the new projects in Dubai Marina geared towards millennials and savvy investors. The building consists of 400 units, the majority of which are small-ticket residences – 158 studio apartments, 158 one-bedroom apartments and 84 two-bedroom units. Prices of the studios start from Dh574,000 with 70 per cent to be paid upon handover, offering budget-conscience buyers an opportunity to own property in one of Dubai’s most sought-after locations.
“In a market that people considered soft, we sold about 65 per cent of the Studio One units in a span of less than a week from our sales launch in October, which includes the sale of all studios, the majority of one-bedders and a fair number of two-bedders,” says Pooya.
The customer base is typically wider for smaller-ticket units, which are also sold faster, according to Pooya. “In Studio One, we are selling studios for Dh574,000 compared to our other development, Marina Gate, where we are selling a three-bedder for Dh4 million,” says Pooya. “When you go from a Dh574,000 product to a Dh4-million product, the customer base suddenly gets smaller since the investor can buy six studios in Studio One [for the price of] a three-bedder.
Moreover, the investors can exit from smaller units faster due to the high demand and enjoy better yields of 7-9 per cent, which are highest globally, driving local and overseas buyers towards these types of units.”
A number of developers have also entered the fray. Shaikhani Group’s building project in Arjan will only have studio apartments with sizes ranging from 400-700 sq ft. The 34-storey Al Jawhara tower by Tiger Properties in Jumeirah Village Triangle will also only have studios, offering 532 units each with parking space.
Master developer Dubai South, meanwhile, is offering very competitive prices at The Pulse with studio apartments starting from Dh280,000, while Nshama’s Hayat Boulevard in Town Square will offer studios starting at Dh378,888.
Downtown Dubai developers are catching on to the discussion. SRG Properties’ 29-storey Marquise Square comprises 384 units, of which 237 or 62 per cent are studio apartments. The tower aims to fill a gap in supply for studio apartments in Downtown Dubai and Business Bay, says Adam Price, Select Property’s managing director for the Middle East and Asia.
“Savvy investors are looking at the core areas of Dubai that are undergoing significant investment and development, which is why the Burj Khalifa area is proving so popular,” says Price.
“The area is dense with young workers and executives who rent their homes. While Dubai Marina is well stocked with studio apartments, areas such as Business Bay and Downtown have significant undersupply. This drives up rental rates and, in turn, delivers high yields to investors.
“With the Water Canal recently flooded and plans for restaurants, retail outlets and entertainment facilities, this area will quickly become even more popular with residents and visitors alike, highlighting a significant investor opportunity.”
Price says the Marquise Square has been popular with GCC buyers, who are taking advantage of its potential for high rental yields and capital gains for a relatively low upfront cost. Prices start at Dh895,000, while SRG expects rental yields of around 8.5 per cent.
With sizes ranging from 474-689 sq ft and each apartment allotted its own parking space, Marquise Square also offers views of the Burj Khalifa and the Dubai Water Canal, which Price says are “often reserved for larger units”.
Studio apartments have accounted for approximately 60 per cent of total sales,
according to Price.
“There is strong demand for entry-level units in prime residential locations across Dubai from both tenants and
investors, which makes Marquise Square an attractive option.”
The rising number of studio units launched by developers is a tacit acknowledgement of the growing influence of the affordable and mid-market segment on the real estate market.
“Some of these developers are scaling down the overall size of apartments, so we are seeing studios, which in the past had sizes of approximately 500-700 sq ft, now being offered from 300 sq ft,” says Mario Volpi, chief sales officer of Kensington Exclusive Properties. “The demand is relatively high, as studios would be the cheapest real estate one can buy. Therefore, end users wishing to get out of the rental trap are now investing in these units. However, investors tend to be the largest group of buyers of studios, as they often like to diversify their portfolios.”
While studio apartments can be found all over Dubai, prime areas like Dubai Marina and Downtown Dubai still have a lower proportion of studios, says Helen Tatham, managing partner of Prime Places Real Estate. “Dubai has become a more expensive city to live in and the cost of renting could price some residents out if the studio option were not incorporated in the market,” says Tatham. “The price appeals to a wider audience of buyers to include those who can’t afford the most expensive inventory. The smaller ticket price associated with these units makes the investment more versatile and easily disposable should the funds be needed at short notice, as larger properties are more cumbersome and rely on more of an end-user market, which is slower moving in a normal climate.”
Studios also appeal to end users, Tatham explains, but the occupants of these apartments generally do not have sufficient income to qualify for a mortgage. “Therefore, savvy developers are offering payment plans post completion to overcome this problem,” she says.
Whether the buyer is an owner-occupier or investor, facilities are becoming a telling factor as the supply of studio apartments increases. “If the market becomes too saturated, it will be buildings with facilities like gyms and swimming pools that remain popular,” says Tatham.
“The cocktail of yield, price and demand are attractive to any investor with Dh400,000 burning a hole in their pocket.”
