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The Dubai real estate market has been on a spectacular bull run with prices reaching an all-time high of AED 1,397/sqft in July, 2024. This represents an appreciation of over 78% from the market trough reached in April 2009 and, more importantly, prices are approximately 13.2% above the previous peak of September 2014. However, when diving into the granular details, we notice that the market is extremely fragmented, with the majority of the momentum being witnessed in the off-plan segment, which now accounts for over 67% of all transactions.
The properties being launched today are fitted with modern specifications and align with shifting consumer preferences. Therefore, it is no surprise that the off-plan price premium exceeds 20% when compared to the aging ready inventory. However, developers are launching inventory that is smaller in size compared to the existing stock in the market. The highest discrepancies are in the one-bedroom category, with off-plan launches being 12.5% smaller compared to ready units. This highlights that although these units may be better fitted, the reduction in space will not be welcomed by end users.
This recent intelligence portrays market dislocations and thus creates opportunities for arbitrage. Recently, we have advised a client on retrofitting a dated low-rise residential tower in an upscale location. After analysing the specifications of the newer products, we noticed that end-user preferences are changing towards more modern finishes such as luxury parquet flooring, bathrooms, and kitchens with top-of-the-line marble finishes and state-of-the-art sanitaryware.
From an investment perspective, our research indicated that the refurbishment costs and capital outlays could be optimised, with a one-bedroom retrofit amounting to approximately AED 35,000, which is AED 35/SQFT. More interestingly, the potential increase in sale rate would amount to AED 250/SQFT, highlighting a lucrative return on capital invested.
As newer and more modern products are delivered over the coming years, the price premiums between off-plan and ready units are expected to widen further, increasing the arbitrage opportunities for opportunistic investors. At the same time, investors need to be vigilant in their acquisition strategy and avoid any value traps.
By capitalising on these insights and opportunities, investors can navigate the complexities of the Dubai real estate market and achieve significant returns through strategic retrofitting and market analysis.
If you have any questions or would like to explore how you can capitalise on these opportunities, please reach out to our Strategy and Consulting team for personalised advice and insights.
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Himanshu Joshi
BEng MSc MRICS
Partner, Valuation
Himanshu is a chartered surveyor and RICS registered valuer, with over 20 years’ experience in plant and machinery valuation. His experience spans a diverse mix of industries in over 30 countries and he has worked with some of the largest FTSE-100 clients during his time with PwC in London.
Himanshu has played a significant role in developing plant and machinery valuation advisory practices in India and the UK, ensuring best practices and international valuation standards are achieved.
Himanshu is a mechanical engineering graduate with an RICS-accredited master’s degree in plant and machinery valuation and he has a business management qualification from the Indian Institute of Management (IIM-C).