Dubai villas and apartments record strong capital gains in first quarter

Villas and apartments in Dubai recorded strong annual capital gains in the first quarter of 2023 as the emirate’s property sector continues to rebound from the coronavirus pandemic.

Villas, which represent 13 per cent of residential homes in Dubai, grew by 17.1 per cent annually while apartment values rose by 6.6 per cent, according to a report from property consultancy ValuStrat.

Jumeirah Islands, with a growth of 5 per cent, The Palm Jumeirah (4.6 per cent), Dubai Hills Estate (4.5 per cent) and Jumeirah Park (3.8 per cent) were the best-performing areas during the quarter.

The ValuStrat Price Index (VPI) covering Dubai’s residential market grew by 11.4 per cent annually to 88 points.

The VPI for villas rose 2.4 per cent on a quarterly basis, 3 per cent shy of 2014 price peaks, the report said.

The apartment VPI grew by only 1.5 per cent quarterly, 34.2 per cent below the peaks of 2014.

The top districts with the highest quarterly capital gains for apartments were The Palm, Jumeirah Beach Residence, The Greens and Discovery Gardens.

“The month of March observed capital gains of typical villas stabilise, whilst apartments witnessed marginal acceleration for the first time since the pandemic,” ValuStrat said.

The latest report comes after Dubai and Abu Dhabi property sales surged in the first quarter amid a broader recovery in UAE’s economy on the back of higher oil prices and new initiatives by the government.

Abu Dhabi’s total sales transaction value for the three months to the end of March jumped more than three times to Dh11.6 billion ($3.15 billion), from Dh3.6 billion during the same period last year, according to real estate listings website Property Finder.

Meanwhile, Dubai’s total transaction value in the first quarter stood at Dh157 billion, marking an 80 per cent annual increase, the emirate's media office said last month.

Prime villa prices surpassed the price peaks of 2014 by 1.2 per cent in the first quarter, according to ValuStrat.

The valuation-based price index for luxury villas grew 16.8 per cent annually and 3.2 per cent on a quarterly basis.

Prime apartments recorded capital gains of 10.2 per cent annually and 1.7 per cent on a quarterly basis.

An estimated 55,863 new-build units have been put on the market so far this year while the number of total estimated completions by the end of the first quarter was 6,564 for apartments and 1,178 for villas, the ValuStrat report said.

Notable apartment completions included the Summer at Creek Beach development with 298 units, the Sunset at Creek Beach project (536), Waves Tower in Sobha Hartland (414), Binghatti Creek at Al Jaddaf development (400) and Azizi Berton in Al Furjan (245).

Based on developer schedules for 2023 handovers, preliminary estimates suggest 48,209 apartments remain under construction, with 54 per cent located in Mohammed bin Rashid (MBR) City, Dubailand, Jumeirah Village Circle and Business Bay.

An 81 per cent share of the city’s coming 7,654 villas will be concentrated in MBR City, Dubailand and Dubai South, the report said.

Villas led the increase in new rents, up 51.5 per cent annually and 4.2 per cent quarterly to record an average asking rent of Dh380,500 a year, the highest in 10 years. Pawan Singh / The National

With higher borrowing costs, a shortage of good quality homes in some areas and attractive payment plans offered by developers, Dubai's off-plan sales volume jumped 103.5 per cent annually to 16,209 transactions worth more than Dh37 billion, representing 57.9 per cent of all residential homes sales, ValueStrat said.

The average ticket size of off-plan homes rose 22.2 per cent annually to Dh2.33 million. The citywide average transacted price for off-plan property was Dh17,783 a square metre (Dh1,652 a square foot).

The average ticket size of ready-to-move-in homes fell 5 per cent annually to Dh2.52 million during the quarter.

The sales volume of ready homes rose 13.9 per cent to 10,889 deals, equal to a total investment of Dh27 billion.

The citywide average transacted price for ready units during the first quarter was Dh14,170 a square metre (Dh1,316 a square foot).

Residential market strength also expanded to the affordable segment, according to ValuStrat.

"This quarter, Dubai Silicon Oasis, Jumeirah Village and Dubailand Residence Complex broke their individual records, with the highest number of homes traded during March, highlighting a possible shift in buyer demand towards the mid to affordable segment of Dubai’s real estate market, particularly homes priced under Dh1 million,” the report said.

Meanwhile, asking rents for new residential contracts in the first quarter jumped 33 per cent from the same period last year and 4.1 per cent from the previous quarter.

Villas led the rental increase, up 51.5 per cent annually and 4.2 per cent quarterly, to record an average asking rent of Dh380,500 a annum, the highest in 10 years, the report said.

Apartment asking rents grew by 20.7 per cent annually and 4 per cent quarterly.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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