Dubai's villa prices increase by 50% in past two years

The villa segment of Dubai's real estate market has seen prices spiral by almost 50 per cent in the past two years. An estimated 13,800 villas are set to be completed within the next two years in various locations of the emirate, according to experts.

A majority of these villas will be in Nakheel's Al Furjan development, while others will come up in Waterfront, Jumeirah Village, Dubai Silicon Oasis and Jumeirah Golf Estates.

According to a recent report by EFG-Hermes titled The Brave New World, approximately 30,000 housing units have been delivered so far in 2008 and 50,000 more will be delivered before the year end. "This number will be a spillover supply from 2006 and will also include an overhang of units in International City that was expected to be delivered in 2008," said Sana Kapadia, Research Analyst with the Cairo-based investment bank.

Completed villas in Dubai so far are in Arabian Ranches, Emirates Hills, Springs, Meadows, The Lakes, Jumeirah Island and the Palm Jumeirah.

"The villa segment – which contains sub-categories such as townhouses, independent villas and signature villas – has seen an escalation in selling price by 50 per cent in the last two years," said Vineet Kumar, Head of Sales for Asteco Property Management.

"Prices of townhouses have increased by 45 to 65 per cent in the past two years while prices of luxury villas have escalated by 50 to 55 per cent," he added.

According to Asteco research, current prices of one- to three-bedroom townhouses in Dubai are in the region of Dh1.6 million to Dh3.8m. Signature villas of four to 12 bedrooms are in the region of Dh18m to Dh130m.

A report by Colliers International says that price increases have been driven by projects nearing handover.

Colliers said Dubai has recorded an increase in villa prices by 73 per cent in the second quarter of 2008 compared to the same period last year. Townhouse prices increased by 38 per cent in Q2-2008 compared to Q2-2007. The report also noted a year-on-year increase of 76 per cent between the same periods in residential prices in Dubai.

It noted that an expansion of existing organisations in Dubai and the entry of new companies into the emirate has resulted in the influx of approximately 200,000 new workers last year with an estimated annual population growth rate of 7.32 per cent expected until 2010.

Although much of this population growth is contributed by the continuous influx of blue-collar labour, demand for white-collar
expatriate housing nevertheless still outweighs current supply.

According to Asteco, the past two years have seen a dearth of villas in the market with the demand-supply gap remaining wide.

However, many new options have been introduced to the market in the same period, it said.

"This gap is expected to further narrow in the coming two years with likely supply of significant villa developments coming up such as The Villa in Dubailand, Veneto in Dubai Waterfront and Jumeirah Golf Estates," said Kumar.

The second quarter's "villa index" from Colliers increased by 16 per cent compared to the first quarter of 2008. The highest increase was in the first quarter of 2008 with the House Price Index indicating a rise of 38 per cent in comparison to the previous quarter.

Prices increased across all market sectors covered by Colliers' index.

Demand for residential property mortgages, which are also an indicator of the demand for property, increased strongly in the second quarter of 2008 from the previous quarter.

However, the overall growth rate in the index slowed from 42 per cent in the first quarter of 2008 to 16 per cent in the second quarter of 2008.

According to Asteco, current demand in Dubai's villa market is highest for mid-range villas, which command interest from both end-users and investors. The luxury villa market is limited to a niche end-user segment, therefore recording a lower demand.

"Mid-range villas are high in demand among property investors as they require less capital investment and can be sold easily in the secondary market. They also give reasonable rental returns," said Kumar.

"International buyers have shown a huge preference for waterfront or golf-course facing villas, but overall the villa market has so far seen an absorption from the UAE and GCC markets.

"Further, villas have recorded a strong demand from expatriates as well as the local population. UAE and GCC nationals have been more end-users while the rest of the expatriate population have preferred to buy into luxury waterfront or golf-themed projects," he added.

"Premium on nearly completed properties or ready-to-move-in always commands a higher premium than off-plan properties as end-users are happy to wait and see a tangible product.

"Rental rates on villas too have risen by an average of 30 per cent across various categories of villas in Dubai. Rental return on villas ranges from five to six per cent in Dubai's villa market but could go up higher, considering there is a considerable portion of villas yet to be handed over," said Kumar.

Meanwhile, apartment prices in Dubai too have increased by 83 per cent in the second quarter of 2008 compared to the second quarter 2007, according to Colliers.

Asteco believes there is an undersupply of affordable accommodation in the UAE and apartment prices in Dubai have risen in the region of 40 to 55 per cent in the past two years.

Current average prices of affordable apartments range between Dh900 and Dh1,200 per square foot. Mid-range villas are priced between Dh1,500 and Dh2,500 per square foot. Luxury apartments go for Dh3,500 to Dh14,000 per square foot.

"The demand for apartments has been regional as well as international with recent trends showing international buyers preferring to buy into mid-range products," said Kumar.

UAE PROPERTY MARKET 'IS SAFE'

Annual real estate returns across the GCC range between eight and 14 per cent in a market that has seen little or no fall-out from the global financial crisis, the Chief Executive of Al Mazaya Holding said.

"Dubai property market will always be an attractive destination for investments," Khalid Esbaitah said in a statement. "There are three factors that form the major constituents that any successful investment relies on – population growth, individual income, and the solidity of the country's economy. UAE has all these three factors.

"The country has successfully been able to use population rise in such an efficient way that it has increased employment, production and has attracted experience. UAE was second in terms of individual income, as reported by the National Bank of Kuwait.

"Most importantly, UAE was able to diversify its income sources by not relying on one sector alone, such as oil sector, but by having an investment rising in all profitable sectors, including air travel, tourism, media, and others. This means that the UAE was able to protect its economy," Esbaitah said.