RESIDENTIAL RESEARCH

Highlights• Prime residential prices have risen since the beginning of 2012. In 2013 the

price of luxury villas have increased by 11.4% and prime apartments have risen 15.1% in value.

• The year-on-year increase from June 2012 to June 2013 for prime residential property stands at 21.4%. The price of luxury villas picked up post January 2012, whilst the price of top-end apartments gained momentum from September 2012 onwards.

• Rents across the prime sector have seen a 15% rise year-on-year to June 2013, with an increasing number of corporate tenants entering the market.

• The proposed mortgage cap announced in December 2012 has caused a flurry of activity amongst owner-occupiers, keen to purchase their homes in Dubai before legislation is enforced.

• Select new off plan development launches, in the more popular areas, are selling out on release.

Summer 2013

DUBAI PRIME RESIDENTIAL REVIEW

2

Prime sales market updateThe Dubai real estate market showed the first firm signs of recovery in early 2012 but this was not across all sectors. Leading the way were the popular family communities, particularly established villa developments with good amenities. Better quality apartments were to follow suit, particularly in Dubai Marina, Downtown and Palm Jumeirah, with an emphasis on high maintenance standards and prime locations.

2013 has seen an increase in transactional volumes along with prices. There are concerns over the rate of price growth, and as a result the UAE Central Bank proposed a new mortgage cap in a circular on the 31st December 2012. While this cap would not effect the large portion of the market made up by cash buyers, it was thought a positive move as it would inspire more thought from buyers considering their exit strategy.

The prime residential market in Dubai has witnessed strong growth partially as a result of investors from North Africa, the Middle East and Asia looking to place wealth in a safe-haven environment.

Knight Frank’s Wealth Report 2013 shows Dubai to be one of the most favoured locations as a ‘safe haven’. It also compares how many square metres US$1m can buy in the world’s luxury residential markets, and Dubai is ranked 19th out of the top 20 cities in terms of cost. The report also forecasts a 58% increase in HNWI population in the 10 years to 2022 creating demand for high end properties.

There is a definite focus on quality by buyers, which is now recognised clearly by developers. With the resurgence of Dubai real estate has come a more acute awareness of trust, reputation and the ability of developers to deliver a high quality product.

Mortgage law updateIn a move to stop the residential market from overheating, the UAE Central Bank proposed new maximum loan-to-value-ratio

for mortgages. The caps proposed were 50% on first homes and 40% on second loans for non-UAE Nationals and 70% and 60% respectively for UAE Nationals. Emirates Bank Association requested a further review of this and have recommended revised ratios of 75% for non-UAE Nationals and 80% for UAE Nationals. We now understand that any directives will not be fully implemented until later in the summer and until then the banks are continuing to lend according to their own criteria.

Rental market updateThe increase in capital values has preceded rental rises particularly in Dubai Marina, Downtown Dubai and Palm Jumeirah where there is good access to facilities and the area appeals to young professionals.

Prime rents increased by 15% in the year to June 2013 fuelled by an increasing expatriate population in the Emirate, but Government-imposed restrictions on landlords raising the rents of their existing tenants has controlled this more than might have been the case otherwise and possibly reduced the movement between properties.

Recognising the increase in demand, investors are seeking out good rental investments where typically they can expect 4-6% net yields.

“Freehold ownership of Dubai real estate for non-Gulf Cooperation Council Nationals has now been in existence for over a decade. Since its inception in 2002, we saw a rapid rise in demand and pricing up to the peak in mid-2008 before suffering a significant decline through the global financial crisis. Now we are experiencing its revival, but with stronger foundations and with Dubai gaining a safe-haven reputation amongst buyers from the wider region.

Rapidly-expanding finance, tourism and logistics sectors are fuelling growth in Dubai’s more tightly regulated property sector. In the last 12 months the government and private developers have implemented cooling measures to reduce the likelihood of another housing bubble. Our experience is that investors are more diligent about the projects in which they purchase.

Dubai continues to attract a mixture of foreign buyers predominantly from the Middle East, Europe, Asia and Africa, who regard Dubai as a city of choice whether it be for lifestyle, business, investment, relative political stability or its income and corporate tax advantages.

Prices have recovered in the prime residential sector, nearing the levels of early 2008 but still around 30% lower than the market peak on average.”

Helen TathamDirector of Residential Knight Frank Dubai

New development launches 2013Emaar sell-outs of Fountain Views, Sky View and Burj Vista in Downtown, and Mira townhouses at Arabian Ranches, the Hills at Emirates Living

Nakheel release Azure Residences, Club Vista Mare and Palma Residences on The Palm Jumeirah

Damac Towers by Paramount, Downtown, Akoya Golf Villas

Millennium Estates and Meydan Sobha villas in Mohammed Bin Rashid City

SUMMER 2013DUBAI PRIME RESIDENTIAL REVIEW

Figure 1 Dubai: buyer nationality breakdown* %, 2012

India 19%Pakistan 15%UK 14%Arab Investors 11%UAE 10%Iran 9%GCC exc. UAE 5%Russia 5%USA 4%Canada 3%Italy 2%Kazakhstan 2%France 1%

Source: Dubai Land Department *commercial and residential purchasers

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Prime market snapshot

1. Al Barari• A luxury villa development next to the Royal

Palace’s Wildlife Reserve. Large independent villas with 5 or 6 bedrooms and built up areas of over 12,700 sq ft.

• The high standard of finishing and landscaped gardens with infinity pools, stands out above other developments.

• Capital values are lower than other prime villa developments partly due to the location not being as central. Taking into account the large terraces included in the built up area, villas are selling at a modest rate of AED 900 per sq ft.

• As the community matures and other projects in the area are re-started, we expect capital values will increase to reflect the quality of the development.

4. Burj Khalifa• The tallest building in the world, the Burj Khalifa

was completed in 2010 and consists of 160 floors and stands at a height of 828m. Consisting of 900 Burj Residences and 144 Armani Residences, it forms the centrepiece of the increasingly popular Downtown area.

• The launch in 2004 was a sell out but investors were hit hard in the crisis before the tower was built. Capital values have now recovered but not by much more than the original price. Prices range from AED 3,500-4,000 per sq ft.

• Due to its iconic status and central location, there should always be a high demand for these units in the centre of a busy business district.

2. Emirates Hills• Launched by Emaar in 2003, this was the first

development to sell plots of land to build bespoke high-end villas. Plot sizes generally range between 20-40,000 sq ft with villas of over 10,000 sq ft located around The Montgomerie Golf Course.

• Prices vary according to the location, size and quality of the finish.

• Capital values have appreciated in this area throughout 2013 with villas now selling for an average of AED 2,750 per sq ft, similar prices to that of early 2008.

• Due to the location, prestige and exclusivity of the community, and the manner in which every villa was built, capital values should remain strong.

5. Le Reve• Handed over in 2007, this was the first building of

Dubai’s developments to consist of penthouses only. Located in Dubai Marina the 82 apartments span half or whole floor plates, with four bedrooms and full sea views over the yacht club.

• Finished to a high specification it attracts famous personalities with its luxury, security and exclusivity.

• Off-plan prices were less than half of today’s value which is now just above AED 3,300 per sq ft.

• Units rarely come to market due to the fact that they are more often bought as a second home in Dubai so prices will remain strong.

3. Palm Jumeirah – Signature Villas

• Located on the fronds of the Palm Jumeirah, these are the largest completed freehold villas in Dubai with private beach access. In several different styles with 5 or 6 bedrooms, a built up area of 7,000 sq ft with infinity swimming pools.

• Capital values have always remained strong due to a limited supply of units and the Palm’s iconic status, which tends to lead the market trend.

• Depending on location, upgrades and general maintenance, prices range between AED 2,500 – 3,500 per sq ft.

• The appeal of both primary residence and second homes in a finite lifestyle project should help continue to support these prices.

6. Kempinski Residences• Located on the Crescent of Palm Jumeirah, this

development benefits from the services of the Kempinski Hotel. A mixture of apartments and villas, finished to 5-star specification with the option of entering the unit into the hotel rental/management pool.

• Primarily bought for rental yield and partial self-use.

• Capital values did not suffer badly in the crisis due to the development’s unique location and quality offering and are currently around AED 2,200 per sq ft.

• This development will uphold its market appeal as a second home and prices are likely to rise as the Crescent matures.

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THE PALM JUMEIRAH

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DUBAIINTERNATIONAL

Map is for indicative purposes onlyApproximate scale

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Al Barari

Emirates Hills

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Le Reve

Kempinski

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Palm Jumeirah

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Flags indicate key buyer nationalities

Le Reve prices are 2.5 to 3 times higher at the end of Q2 2013 than at launch, having risen to nearly 4 times the original price at the peak in Q3 2008. Strong capital values are partly due to the limited number of apartments that ever come to market and the fact that many owners are second-home high net worth individuals who rarely need to sell. Burj Khalifa prices increased by 40% briefly at the peak of the market but then dropped to below off plan prices for the following four years until regaining their original value in Q2 2013.

The past 18 months has seen an increase in buyers from the Middle East and the graph shows that GCC nationals represent a higher average spend category than other international purchasers. The Arab Spring attracted funds into Dubai which is seen as a safe-haven regionally but we are increasingly witnessing investment again from Eastern Europe, and countries such as France, UK and Italy which are experiencing either fiscal turmoil or heavy taxation laws. The most popular property price is between AED 1.5m to AED 3m.

Emirates Hills and Palm Jumeirah signature villas recovered to their Q3 2008 price levels by Q2 2013. Upgraded and well located villas sell at a premium within their own development bringing the average prices up and as the trend of home improvement becomes more popular, buyers will be offered better quality finishings and more individuality. Al Barari, though unique as an environment, has not benefited from the same performance levels demonstrating that some developments will take time to appreciate.

An interesting demonstration of the performance of apartments compared to villas over the last 12 months. When the residential market started to show positive signs at the beginning of 2012 it was the villa sector that led the way showing significant growth in the first half of the year with a slowing rate going into 2013. Apartments made up ground from the beginning of Q4 2012, with high end units in Dubai Marina, Downtown and Palm Jumeirah showing strong performances similar to that of prime villas previously. The delayed reaction could have something to do with the volume of units available in high rise developments and since the combined demand from investors and end-users has risen throughout the last 12 months, the uptake of this supply is more balanced. The capital increases year-on-year at Q2 2013 continues to be impressive with Le Reve leading at 30% followed by Burj Khalifa at 27%. Al Barari is the most conservative performer, which may be due to its location but improvements in infrastructure will help capital values in the future.

This graph demonstrates the number of units that the Burj Khalifa has to offer compared to other prime developments. The choice of sizes and layouts in the world’s tallest tower contrasts with the design of Le Reve where apartments are more traditionally designed to offer luxury marina living. The exclusive Emirates Hills where the majority of villas are individually designed is the largest of the selected villa developments whilst the Al Barari project represents a more boutique environment.

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Prime market trends

Figure 2 Prime residential stock in DubaiSelected developments

Figure 3 Dubai prime developments Annual % change and price per sq ft

Figure 4 Dubai capital value performance Apartments (selected developments)

Figure 5 Dubai capital value performance Villas (selected developments)

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Figure 6 Average spend by buyer nationality2012

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Source: REIDIN.comREIDIN is an online information service linked to the Dubai Land Department. Figures contained in this report are derived from the basket of properties included herein.

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KnightFrank.ae

What can USD 7m dollars buy you?

Prime residential property in Dubai has been a positive story over the past 18 months and we expect this narrative to continue given the low number of completions forecast up until the end of 2014 set against the strong demand for high-quality luxury properties.

On-going improvements to Dubai’s already-impressive infrastructure are underway and investor confidence is strengthening, we are also seeing an increasing number of

professional expatriates arriving. These developments combined with the Emirates Airlines’ expanding network and the resurgence of new development releases suggest a positive outlook for Dubai’s prime residential market.

The announcement in June by MSCI that the UAE has been upgraded to emerging markets status implies a busy time ahead and this will be reinforced in November if Dubai succeeds in its bid to host Expo 2020.

outlook

Palm Jumeirah Signature villa, 7,000 sq ft BUA, 13,000 sq ft plot area

Dubai Marina La Reve apartment, 6,200 sq ft BUA

Emirates Living Emirates Hills villa, from 8,000 sq ft BUA, 15,000 sq ft plot area

Al Barari Upgraded villa, 16,448 sq ft BUA, 16,404 sq ft plot area

RESIDENTIAL RESEARCH

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