Investor Alert: Flat or villa, and where? - Emirates24|7

Investor Alert: Flat or villa, and where?

Landlords continue to benefit from higher rental yields, with a 7.5% gross yield for apartments and 4.7% for villas (File)

Apartments in ‘affordable’ Dubai communities like International City and Discovery Gardens are offering much better return on investment to landlords than their posh villa counterparts, according to a new report.

According to international property agency Chestertons Mena’s latest residential market report for Dubai, landlords in secondary locations in the emirate are benefitting from high rental yields.

“It is the secondary locations that are once again offering the highest yield, ranging from 7.7 per cent at Dubai Silicon Oasis to 9.5 and 9.6 per cent, respectively, at Discovery Gardens and International City,” said Declan McNaughton Managing Director UAE, Chestertons Mena.

As Emirates 24|7 reported in February 2016, Dubai property prices are holding up much better this time despite a decline in the global oil price. 

“While oil prices remain well below the long-term average, which is clearly having an effect on market confidence, Dubai’s improved regulatory environment, broader investor profile, and increased maturity are all indicators that its real estate market should eventually self-correct,” says Sidharth Mehta, Partner and Head of Building, Construction and Real Estate with KPMG Lower Gulf.

Read: 5 reasons Dubai property prices aren't falling this time 

Dubai landlords continue to benefit from higher rental yields, with a 7.5 per cent gross yield for apartments and 4.7 per cent for villas across the city’s most popular affordably priced developments, the new report reveals.

“Overall, market yields have retained some degree of attraction as we saw residential prices drop in the first three months of the year, with apartments proving to be the most successful option in terms of yield,” said McNaughton.

One of the primary reasons for the continuing stability in Dubai property prices is the emirate's attractiveness as a safe and lucrative investment destinations. 

Last month, a survey by real estate consultancy Cluttons revealed that more than half of the GCC’s wealthy individuals want to invest in a property in one of the three major UAE cities, primarily in Dubai. 

Of those surveyed, more than a quarter (27 per cent) identified Dubai in their top three destinations within the GCC, while 21 per cent chose Abu Dhabi and 8 per cent selected Sharjah.

Read: Why the world’s wealthy want a slice of Dubai

“However, despite ongoing sustained demand for affordable rental units, as end-users look to reduce the cost of living by relocating to secondary communities, the villa segment still provided an overall average yield of 4.7 per cent, which is encouraging for investors in it for the medium to long term,” he added.

‘Affordable’ villas yield more than posh homes

The Springs, a relatively more affordable Dubai villa community by Emaar Properties, registered the highest investor yield at approximately 6.4 per cent in Q1, while apartment yields stood at 7.5 per cent with studios recording the highest yield figure at 8.4 per cent, the report highlights.

On average, there was a 0.5 per cent decrease in apartment rental rates during the first quarter of 2016, with Downtown Dubai recording the highest drop of approximately 5 per cent.

Dubai rentals inch lower

In secondary locations, a one-bedroom apartment is currently renting for between Dh55,000 and Dh73,000 with a two-bed unit from Dh75,000 and Dh95,000.

At the top end of the market, a one-bed in DIFC rents for an average of Dh118,000 per annum while a two-bedroom apartment is going for an average of Dh163,000.

In the villa rental market, Palm Jumeirah homes fared slightly better, registering a decline of just 2.5 per cent with three-bedroom villas renting for an average of Dh325,000 and four-bed residences for Dh448,000.

Mudon is the most affordable villa community currently, with three-bed homes renting for per cent 188,000 per annum and four-beds for per cent 203,000.

“With rental demand expected to be weak at current prices… we expect to see further correction of rental rates in the high-end apartment and villa segment as the year progresses,” said McNaughton.

Sale prices up in some Dubai localities

The average sales price per square foot for residential units in the city stood at Dh1,221 in Q1 2016 with available supply of 461,000 homes.

New supply accounted for just 1,100 units in the apartments segment and 46 and 14 units, respectively, at upscale villa communities of Jumeirah Golf Estates and lower end Jumeirah Village.

Popular apartment developments that saw positive sales price movement included Dubai Silicon Oasis units at Dh826 per square foot against Dh785 in Q4 2015, DIFC up to Dh1,875 versus Dh1,810, and Remraan at Dh807 versus Dh790.

Average apartment sales prices, however, recorded a negligible 0.7 per cent decline.

The villa sales market recorded an average 1 per cent decline while Q1 2016 increases were seen in locations such as Victory Heights which was up to Dh1,195 per square foot, against Dh1,185 in Q4 2015.

“It was a positive first quarter for transactions, with a quarter-on-quarter increase of 11 per cent, which amounted to total transaction value of Dh27bn. We also saw mortgages approvals jump by over 50 per cent, which is encouraging,” remarked McNaughton.

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