Dubai suburbs offer bang for your buck

(MENAFN- Khaleej Times) Affordable communities in Dubai have been outperforming premium areas in terms of growth in both sales prices and rents. It is common knowledge that high-end locations such as Palm Jumeirah and Dubai Marina are oversaturated with luxury towers. Therefore investors in search of robust yields and value-conscious end-users are increasingly looking at up-and-coming locations in Dubailand and other suburbs.

As a result the Dubai property market has been highly fragmented in terms of performance.

"Prime areas such as Downtown Dubai Palm Jumeirah and Dubai Marina are seeing more pronounced rental deflation than many affordable locations as the market continues to see a flight to affordability. However with the actual delivery of units falling short of anticipated supply levels the occupier market has held up comparatively well particularly for more affordable and mid-market locations such as Jumeirah Village Circle Dubai Sports City and Dubailand Residences which all achieved rental growth" says Erik Volkers associate director CBRE Middle East.

High-end areas are also recording the most significant decrease in sales prices. In Dubai Marina for example prices fell by over 10 per cent during the first nine months of 2015.

In contrast sales prices in more affordable locations such as Jumeirah Village Circle and Dubailand witnessed only slight drops. In International Media Production Zone property prices showed an increase at the end of 2015.

Value for money

According to Porush Jhunjhunwala director of Banke International Properties: "New suburban developments are sprouting throughout Dubai from Dubailand to Meydan to Al Qudra offering residents more value for money and investors better opportunities than areas such as Dubai Marina Downtown Dubai and Jumeirah Lakes Towers. Communities such as Dubai Hills Mudon Mira Oasis Town Square by Nshama and Serena by Dubai Properties are increasingly attracting value-conscious customers who are on the lookout for more space and greenery and in many cases the chance to break free from the rent-based lifestyle."

Units in suburban locations also offer occupiers more bang for their buck. For instance Dh2.9 million would typically fetch you a 1400 sq ft three-bedroom apartment in Dubai Marina or a 1400 sq ft two-bedroom apartment in Downtown. With the same amount you can buy a villa of nearly 3800 sq ft in Mudon or three properties each with three bedrooms in Nshama's Safi Apartments.

When it comes to renting a four-bedroom villa in Mudon can be leased for an amount similar to a three-bedroom unit in Dubai Marina or a two-bedroom in Downtown.

"There is no denying that Dubai's prime areas have become oversaturated and congested and the sacrifices that home-seekers are making when moving to these neighbourhoods are outweighing their well-known advantages" adds Jhunjhunwala.

End-user activity is said to have picked up in the affordable housing bracket. "We have observed higher transaction activity in affordable areas such as International City and Discovery Gardens. Almost 220 transactions were recorded in the first three months of this year for luxury properties in Downtown and Palm Jumeirah while the number was up to 450 for International City and Discovery Gardens" informs Robin Teh country manager - UAE and director of valuations and advisory - Chestertons Mena.

Transactional activity

We see a similar pattern in year-on-year figures. Approximately 2000 transactions were recorded for affordable areas (International City and Discovery Gardens) in 2015 compared to 1200 transactions for luxury projects (Downtown and Palm Jumeirah).

This shift in end-user preferences could explain why more developers are launching projects in the affordable market.

"Demand for low-cost housing is still far out-stripping supply with significant population growth exceeding 6.5 per cent per annum over the last five years in the low- to mid-end population brackets. Existing 'affordable housing' in freehold areas such as International City Discovery Gardens and Dubailand have experienced sustained growth in demand pushing rates to levels beyond the reach of many low- to mid-income households. We expect to see the flight to affordability continue in the short term with strong demand from low- to mid-income households" explains CBRE's Volkers.

There are over 800000 middle-income households representing almost 40 per cent of all households in the UAE. It is therefore imperative that this underserved marked is taken care of.

"The paucity of supply in the mid-income market is mainly due to lower returns to developers high land and capital costs associated with infrastructure development and limited finance options for low-income families. The government should offer incentives to developers to launch more affordable housing projects that make it a win-win situation for everyone" suggests Jhunjhunwala.

Buyers look at value for money than prestige

The total number and value of residential unit transactions have declined during the first two months of 2016 compared to 2015 according to data from the Dubai Land Department.

"Dubai's residential market continues to experience a slowdown in activity which is attributed to a combination of local and global events. The softening in demand may be attributed to several factors including the EU's enforced sanctions on Russia low oil prices and the ongoing volatility in global currency markets. The US dollar strength and euro/pound weakness has made Dubai a much more expensive investment proposition for many would-be investors from Europe and other regions" says Erik Volkers from CBRE Middle East.

However newly launched properties with reasonable price payment plans and healthy returns are attracting interest.

"Buyers look at value for money than prestige with developers offering flexible payment plans cash discounts reduced pricing for limited period and full or part payment of Land Department fees etc" says Porush Jhunjhunwala of Banke International Properties.

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