Property prices in Dubai have risen for the first time in 6 years and there’s been an uptick in real estate market activity as evidenced by the data from Dubai Land Department. With buzz surrounding the property market once again, many current and aspiring real estate investors have one question on their mind, “What are best areas or locations to invest in?”
We understand that given the numerous options and new areas popping up, figuring out the most lucrative area for property investing can be challenging. But, worry not! In this blog post, we will share with you key factors for determining the best areas to invest in Dubai.
Before we jump into the targeted locations (best areas), let’s take a look at some interesting insights which occurred over the last 6 months. As shown in the graph below, there is a gap between off-plan and ready transactions in the year 2020. Historically speaking, Dubai’s completion rate of projects is around 45-50%. For this reason, investors are now inclined towards properties with less risk, i.e. ready properties.
This is mainly due to 2 reasons:
- Less off-plan properties are being offered to the market
- People believe ready properties will have more value in the future
Latest Villa Market Trends 2021
It’s quite interesting also how the total value of transactions is exploding lately, especially within the villa space. Overall, Dubai’s value pricing is growing higher, which is a good sign of recovery and a great momentum. Moreover, thanks to the new favorable business conditions and residency permits, plenty of rich people have set foot in Dubai. As a result, there was a huge surge in demand within the first quarter of 2021 for ready villas, as shown in the figure below.
So why do we care about the gap between off-plan vs ready properties?
Well, insights revealed there is an appetite for ready properties. Hence, the most popular areas will be evaluated based solely on the ready properties available.
Top Transacting Communities
In order to accurately infer the best areas for investing, you must understand the difference between value and volume of transactions. For example, with regards to level of transactions, 10 transactions could mean 10 Toyota cars or 10 Rolls Royces. Both cannot possibly have the same value, despite reflecting same number of transactions. So, the real question here would be: do we care about the value or transactions of transactions when looking at best areas?
The figure above reveals the top 5 communities (best areas in terms of volume of transactions, showcasing darker shades of blue) over the last 180 days:
- Dubai Marina: a mature established community serving as a tourist hub and ranks #1 best area
- Business Bay: has a prominent canal-side location, great transportation links, and modern as well as leisure facilities
- Dubai Hills: preferred destination for luxury homes
- Town Square: has a strategic location and serves as a peaceful community
- Jumeirah Village Circle: one of the most popular freehold areas in Dubai
On the other hand, when we consider top value communities, typically luxury areas would top the list. With the UAE’s new business friendly environment and safety procedures, Dubai has been a popular choice for the mega rich. This has been reflected also in the skyrocketing value of real estate transactions which more than doubled in the last 180 days. For example, Palm Jumeirah continues to grow in total value of transactions by 4.58G, as more and more affluents set their foot in Dubai. In fact, Palm Jumeirah is considered the best area and a major target destination for luxury living right now in Dubai.
Which of these areas generate the highest yields (returns)?
Over the last 2 years, rents have dropped more, exacerbated by the pandemic. However, given the strong recovery, prices are rising and rents will eventually pick up due to the supply/demand equation. So, you shouldn’t be concerned about the current returns. Instead, your focus should be on the entry value. That’s the critical factor! In other words, track where demand is following and this will lead you to higher prospective returns.
Adding to that, net yield is also a crucial aspect to consider. Most brokers use misleading numbers, such as gross yield to market their properties. Gross yields doesn’t include service charges and other costs. On the other hand, net yield is based on service charges, which is a key component when investing. A big chunk of your rent will cover service charges, leaving less money for you in terms of returns. As a result, this has implications on which areas investors focus on. If we look at prime areas like DIFC, Palm, and JBR, we notice they have very low net yield percentages. Why? Such areas have high entry points, i.e. high service charges. Thus, any reduction in rent, has a greater impact on the respective communities. Nevertheless, the following analogy does not imply that these areas are bad for investments. They just fit a different set of expectations. Prime areas are more dependent on capital appreciation. Depending on your investment profile and goals, the tactics vary. In affordable areas for example, you would be more focused on income.
On the other hand though, cash flows are very important to us. For this reason, SmartCrowd is keen on providing affordable properties on the platform within top communities such as Dubai Marina and JVC.
Where is the supply?
In reference to the latest data released, most of the upcoming supply will be in Business Bay., which ranks 2nd in Dubai’s best areas. At the same time, Business Bay ranks 4th in number of completed ready supply. How is this relevant to us? If you take a look at Dubai Marina, it has the second highest ready supply but what’s interesting is that there isn’t any upcoming supply for it. In return, there will be more demand for it, making it the safest bet for your investment and explains why it tops the list in best areas for property investing.
In conclusion, if you want to know which area seems to serve as a good investment for you, take a look at the influx of supply. Supply usually takes time to catch up with the current rising demand. Anyhow, overall the market is witnessing a stable recovery in all aspects and so signals a great time for you to invest, especially in Dubai’s 5 best areas!