UAE - With developers' profit margins increasing, middle-income families are usually squeezed out of Dubai's property market every time demand for real estate rises. The current price of a studio flat ranges from Dh800,000 to Dh1 million, reflecting a potentially "overheated" Dubai property market.
Officials and market analysts say that investors who bought properties at current prices may not be able to sell them at the same price if the market weakens in the coming years.
A studio flat priced at Dh800,000 will generate a rental income of up to Dh40,000, which, excluding service charges, gives an annual return of 5 per cent. If service charges are included, the return on an investment of Dh800,000 is less than 4 per cent. This can make property investment 'uneconomic' as other investment vehicles may offer higher returns.
Dugasta Properties Development, a Dubai-based property developer, is offering affordable housing starting at as low as Dh400,000 for a studio flat.
In addition, subject to certain terms and conditions, the developer is offering a guaranteed return on investment of eight per cent per annum for the first five years on all types of flats, be they Sudio, one-bedroom or two-bedroom flats, with the aim of rebalancing the property market while attracting new buyers into the market, which has seen the high cost of purchasing a home result in an early push out for many fixed-income households.
Dugasta is also offering a buyback option (based on certain terms and conditions) after a five-year period if the buyer wants to sell the property. A senior official told Khaleej Times that Dugasta will buy back the property from the buyer at the original selling price, subject to certain terms and conditions.
Tauseef Khan, founder and chairman of Dugasta Properties, said, "This effectively means that the homebuyer or investor will get back 40 per cent of his investment within the first five years."
Under the scheme, we also offer a property buyback option if the homebuyer/investor decides to sell the property. Although properties are currently selling at higher price points, we have decided to enter the market at a comfortable and attractive price point that will attract middle-income families to buy their dream homes, a price point that we believe is sustainable in the long run, even if the market weakens.
During the first half of 2023, the Dubai real estate sector witnessed 76,119 land and property transactions valued at Dh283 billion, up 76.87 per cent from Dh160 billion in the same period last year. This reflects exceptionally strong growth momentum, not only due to an increase in the number of property sales, re-sales and mortgages, but also due to an increase in the value of properties and the number of transactions.
This effectively means that the average transaction value has also increased compared to the same period last year, reflecting the jump in average property prices. Studio flats selling for Dh400,000 to Dh450,000 in January 2022 jumped to Dh800,000 to Dh900,000 in January 2023, a doubling in just one year since Russia's attack on Ukraine.
"This unusual jump in property prices has made property unaffordable for even high-income families, making property prices unsustainable. Buyers who have invested in property at such high prices will not be able to sell their property at the asking price if the market weakens," said Tauseef Khan, who has more than three decades of experience in the rental and sale of property across Dubai, where he manages more than 7,000 flats and villas through his rental and sales arm, City Tower Real Estate.
"As we are celebrating the UAE's Year of Sustainability and preparing to host the COP28 Summit in November, it is important to practice sustainability on all fronts. Economic sustainability is more important to us than environmental sustainability as we need to sell our properties at prices that the market can support in the long term. Therefore, we have decided to start the studios at as low as Dh400,000, although we could sell them at a higher price. I believe that this price is very affordable and sustainable and that the market can support it even if there is a soft landing sometime next year".
Khan believes that developers will be able to make money even in affordable housing as the volume of transactions will make up for the lower profits as the lower sale prices will help in selling the properties at a faster pace than the luxury flats.
"Our properties will be affordable to customers and economically sustainable. The affordable prices will help more families move from renting to their dream freehold property and insulate them from rent-related inflation," he said.
Under the 8 per cent guaranteed return on investment scheme (subject to certain terms and conditions), for a property priced at Dh1 million, for example, the investor will receive Dh80,000 per annum for the first five years after handover, followed by a guaranteed return on investment totalling Dh400,000 over the next five years, regardless of market conditions, with the developer able to buy back the property at the original If the investor wishes to sell the property, the developer can buy back the property at the original selling price under certain terms and conditions.
The move will not only boost investor enthusiasm and increase demand, but will also help put the sector on a more sustainable growth path as it will help all stakeholders.
Average house prices in Dubai are growing at the strongest rate since late 2014, increasing by 16.9 per cent in the year to June 2023, real estate consultancy CBRE said. This is up from 15.9 per cent growth a month earlier. During this period, the average price of a flat grew by 17.2 per cent and the average price of a villa by 15.1 per cent. As of June 2023, the average price of a flat reached Dh1,294 per square foot and the average price of a villa reached Dh1,525 per square foot.
For the third time in the past 20 years, Dubai's property market has experienced significant growth, with an increase in both transaction volumes and prices. Considering the market crashes Dubai experienced in 2009 and 2015, this surge in activity has raised concerns about the possibility of another property bubble.
