19 October 2014
With an expanding significance of freehold in Dubai, land prices are expected to rise
As Dubai’s real estate market enters its third cycle of 2014, the big question many investors and developers are asking is: Where to build?
An integral part of the UAE’s real estate transformation and cycles can be analyzed through its Land Dynamics: Land versus End Units. Through our research, we compare the land to end unit prices in both residential and commercial transactions, and analyze transactional activity in both segments, to where the most popular areas to build within the Dubai Emirate.
Where to Build for Residential units?
A couple of factors will influence this decision:
First an analysis of Q-Ratios* shows that the historical average is 1.3, which is 40% higher than current levels, coupled with our YoY analysis of this transactional activity shows a dip of 16-17% in both segments.
Creating sensitivity between transactional activity and prices is higher for end-units compared to land, leading to a potential surge of land prices.
With tapering off of end-unit prices, developerswill rush to areas with higher Q-Ratios to experience higher appreciation of land prices, and trade away expected super normal profits.
To date, DWC has the highest Q-ratio, implying that land prices will continue to gather momentum, especially towards the build up for the World Expo 2020
Where to Build for Commercial Units?
A supply analysis of commercial projects in Dubai shows that the bulk of supply expected to hit the market will be on Sheikh Zayed Road. As Dubai’s population begins to expand inward with new supply focused on the Mohammad bin Zayed Corridor, an uptick for DED commercial demand will rise with however a notable acute shortage of office supply especially in the DED segments.
While comparing Replacement Value of DED Offices and of Q-Ratio’s between commercial areas on Mohammad bin Zayed road and Sheikh Zayed road, we notice the former to be a more lucrative option for developers as they have a higher Q-Ratio.The major repositories that offer DED licenses will be Majan, Arjan, liawan, and JVC, driven by the expansion of the real estate, legal, and banking sectors
Ahmet Kayhan, CEO of REIDIN commented: “While our joint research with UNITAS Group shows that the end-unit prices have surpassed their peak of 2008, land prices are still at 50% of its peak levels. Even as end unit prices stabilize, land prices are expected to rise and developers will accelerate construction and offer units along the Mohammad Bin Zayed Road. Developments for offices and residential units along this corridor are expected to rise, giving birth to a more sustainable affordable housing segment in line with the vision of the Dubai Government.”
*The Q-Ratio shows helps developers analyze their return on equity for their projects, a higher Q-Ratio implies a higher return and vice-versa.
Click here to read the full report: http://bit.ly/1sGfoQ5
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