Looking from an outside perspective one get`s the impression that Dubai property is all but one thing: Luxury, luxury, luxury.
Discovery Gardens, International City, Silicon Oasis: It is virtually these three areas that constitute the „low-end“ (freehold) sector as per now, compared to the endless list of other areas within Dubai that are much more costly.
And yet, just as in any other location worldwide, high net worth individuals are in the minority and the average resident being a medium-ranked employee in the service sector can afford an annual rent of approximately 20,000 USD. Moreover, approaching the World Expo in 2020, a dramatic increase in job creation is to be expected drawing in – you guessed it – predominantly employees fitting into this particular segment of housing demand.
The Developer`s View
The business case for the developers building luxury property is a simple one: High-end developments offer substantially higher margins. And until now, the combination of investor and HNW end-user appetite supported this skimming (read: „mainstream“) strategy.
With subdued construction costs a reality and the excess demand for affordable units becoming imminent, it seems odd that developers are predominantly reluctant to adopt what appears to be the new paradigm of the Dubai property market.
In fact, we see very little suitable supply in the construction pipeline aiming at the low end. As per the third quarter 2015, a mere 22% of the properties launched fell into the category of being „affordable“.
Dubai`s Growing Middle Class: It`s the Demand, Stupid
However, as the tail cannot wag the dog in the long run, investors must not neglect end-user demand looking forward from now. The stability of rents and acquisition prices that were witnessed in the affordable housing segment in Dubai during the past 18 months foreshadow what is to be reaped by the smart investor when that EXPO-effect kicks in.
Given that affordable property in Dubai yields around 10% return already at present, the outlook for rental income and capital appreciation – based on the outlined market fundamentals – seems even more appealing.
Consequently, if you are looking for a mid-term investment into the Dubai property market: Go smart means to go cheap.
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The author advises institutional investors about property transactions and handles property portfolios in Dubai since the year 2007. Should you have comments or inquiries, please contact the author on firstname.lastname@example.org.