Why you now need a higher budget to buy a villa in the UAE

Homebuyers have been forced to increase their offers after being gazumped because of high demand and limited stock

High-end villa communities such as Palm Jumeirah in Dubai are in high demand among affluent families seeking privacy and outdoor space. Photo: Paulo Vecina / The National

More families are upgrading to affordable villa communities such as The Springs in Dubai as prices are affordable now. Courtesy Better Homes

Arabian Ranches villas and townhouses have seen increasing demand among bigger families looking to upgrade their accommodation after the Covid-19 lockdown. Photo: Pawan Singh / The National

Communities like Mudon are also sought-after by property buyers who are seeking more space for their money. Photo: Satish Kumar / The National

Buyers who are keen on bigger spaces but willing to sacrifice prime location are considering living in villa communities like Mira in Dubai. Courtesy: Allsopp and Allsopp

Villa communities further away from the city centre such as Akoya Oxygen are priced well. Courtesy Allsopp & Allsopp

Developer Nshama's Town Square project on Al Qudra Road in Dubai is in demand among value-conscious buyers. Courtesy Nshama

Affordable villa communities in Dubai such as Serena has seen an increase in demand among buyers after the Covid-19 lockdown.

When Camilla Hammer, a Danish expatriate in the UAE who owns a television production company in the UK and Los Angeles, struck a deal in December to buy a villa on Palm Jumeirah, her family was looking forward to upgrading to a bigger living space and enjoying the great outdoors.

Their excitement, however, quickly turned to disappointment when the seller cancelled the sales agreement after receiving a higher bid from another buyer. The sudden cancellation of the contract forced Ms Hammer to increase her budget significantly, and she eventually purchased a five-bedroom villa at the Palma Residences on Palm Jumeirah.

In property jargon, Ms Hammer was gazumped, a phenomenon that is normally associated with a fast-paced seller's market, according to property experts.

"We specifically wanted to buy a Palma Residences villa because it is walking distance to the mall, the Golden Mile and the beach. You can't do this from a villa situated on the fronds of the Palm Jumeirah," Ms Hammer, who moved to the UAE a year ago, tells The National.

In recent months, many of our clients have had to increase their offers above the asking price in order to secure their property purchase

Although the family briefly considered buying in other communities in Dubai, no other properties appealed to them. Having already lived in an apartment on the Palm Jumeirah, the family loved the community, but wanted to buy a villa for the outdoors lifestyle it would provide.

“We got a mortgage to fund the property purchase. Although we had a mortgage pre-approval in place for our original budget, the process to revise it to a higher price was simple,” Ms Hammer adds.

The value of Dubai's property sales transactions in April hit a four-year high of Dh10.97 billion, according to listings portal Property Finder. This is the highest value of monthly property transactions since March 2017. Dubai has registered a total of 16,577 property transactions worth Dh36.12bn since the start of 2021, it added.

A combination of factors are pushing up property prices in the UAE, including favourable legislation to buy long term, tax-free salaries and the government’s efficiency in handling the Covid-19 pandemic, Ms Hammer says.

However, regulations should be tightened to prevent sellers from arbitrarily increasing agreed sales prices, she adds.

“In recent months, many of our clients have had to increase their offers above the asking price in order to secure their property purchase as demand for property in more established areas has remained buoyant,” Brendan Kennelly, senior mortgage consultant at Mortgage Finder, says.

Haider Tuaima, head of real estate research at consultancy ValuStrat, agrees. Buying a villa or a townhouse in Dubai today requires a higher budget than six months ago, Mr Tuaima says.

Depending on the community, buyers looking to purchase a townhouse or villa in Dubai are having to increase their budget by 15 to 20 per cent compared with eight months ago because of the increase in demand and lack of supply, according to Lewis Allsopp, chief executive of real estate broker Allsopp & Allsopp.

“Following the lockdown and Covid-19 restrictions in 2020, demand for bigger living spaces and private outdoor areas increased, hence the spike in interest for villa/townhouse properties. Naturally, prices for these property types have increased, too, and buyers have had to adjust their budgets accordingly,” Mr Kennelly adds.

The average purchase price for a villa/townhouse in the UAE has grown 23 per cent between the fourth quarter of 2020 and the first quarter of 2021, according to data from Mortgage Finder.

Meanwhile, the average budget for a two-bedroom townhouse in Dubai now ranges from Dh1.3 million to Dh1.6m, according to real estate broker Aqua Properties. Last year, the same property would cost between Dh1m to Dh1.3m. Furthermore, the price for a three-bedroom townhouse increased between Dh1.6m and Dh2.2m from Dh1.3m to Dh1.6m previously.

“High-end villa communities like the Palm Jumeirah are at the top of the list, whereas other affordable communities like The Springs, Arabian Ranches, Serena, Mudon and Mira have also seen an increase in demand,” Zain Mulji, a senior sales consultant at Aqua Properties, says.

“Prices have gone up by 20 per cent to 30 per cent in these communities and nearly 40 per cent on the Palm Jumeirah.”

High-end villa communities like the Palm Jumeirah are at the top of the list, whereas other affordable communities like The Springs, Arabian Ranches, Serena, Mudon and Mira have also seen an increase in demand

Allsopp & Allsopp is seeing robust sales of villas and townhouses in Jumeirah Golf Estates, Emirates Living and Jumeirah Park – communities where stock is limited.

“Areas further away from the city centre such as Akoya Oxygen, Mira and Town Square are priced well and have attracted buyers who want to live in a townhouse or villa after being in an apartment as the prices of Downtown Dubai, Palm Jumeirah and Dubai Marina apartments are similarly priced to these villa communities,” Mr Allsopp says.

“Buyers will get more space for their money here but will sacrifice the prime location – it all depends on [their] priority.”

The increase in demand is primarily related to space and privacy, plus the fact that prices had been more affordable until the recent rises, ValuStrat's Mr Tuaima says. A higher mortgage loan-to-value ratio of up to 85 per cent is also driving the increase in buyer demand, he adds.

"Although some people are surprised by the sudden upward trend in the real estate market, to others, this has been a long wait for prices to pick up. This has been happening since October 2020 and I believe one of the strongest reasons for the price movement is the security that the UAE provides," Mr Mulji tells The National.

The price increase is also due to high demand and a decrease in stock availability, Mr Mulji adds.

The increase in demand for villas and townhouses is, however, not resulting in a decline in demand for apartments, experts say.

“We have actually seen apartment prices rise, too, despite changes in demand for villas/townhouses. In fact, based on Mortgage Finder records, the average price for an apartment has gone up by 16 per cent from the first quarter of 2020,” Mr Kennelly says.

The average selling price for a two-bedroom apartment in Dubai Marina and Palm Jumeirah has increased this year, according to Allsopp & Allsopp data.

For instance, in May 2021, the average selling price of a two-bedroom apartment in Dubai Marina is Dh1.85m compared with Dh1.78m in January 2021. Similarly, on Palm Jumeirah, a two-bedroom apartment is selling for an average of Dh1.68m today compared with Dh1.6m in January 2021.

Apartments are expected to follow suit in terms of recovery, beginning with in-demand high-end units. The rest of the apartment market is expected to see a stabilisation in prices followed by gradual growth, Mr Tuaima says.

“First-time buyers are attracted to apartments because of the price and only needing little space to begin their journey up the real estate ladder,” Mr Allsopp says.

Investors are also keen to buy apartments in prime locations such as Dubai Marina, Downtown and Palm Jumeirah. These are also perfect as short-term lets, he adds.