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Mansions and Maisone*es: An Examina0on of Horizontal Living in Dubai
Unitas Consultancy (A GLOBAL CAPITAL PARTNERS GROUP COMPANY) Q4 2015
This document is provided by Unitas Consultancy solely for the use by its clients. No part of it may be circulated, quoted, or reproduced for distribu0on outside the organiza0on without prior wri*en approval.
STRICTLY CONFIDENTIAL
Office No. 103, The Palladium, Plot No. C3, Jumeriah Lake Towers, Dubai, UAE 1
• A dissec0on of Dubai’s horizontal living space reveals that exis0ng supply is heavily skewed towards the villa segment (63%) versus townhouses (32%) and mansions (5%). Dubai has become top-‐heavy, as historically, projects were concentrated at the higher-‐end en0cing the leisure class and investors. However, in the last year developers have shi`ed course to service the mid-‐income housing segment trying to correct the lopsidedness that currently exist within the market. A granular analysis of up-‐coming supply reveals that there is a higher concentra0on in the townhouse space compared to the historical topography, implying a shi` towards affordability is under way.
• An analysis of horizontal living in the luxury villa and mansion segment reveals an upward sloping Q-‐ra0o curve (market value/cost value); this implies that there is a likelihood of prices at the higher end falling as prices converge towards replacement value.
• Price correc0on is already underway, with indices revealing an average price fall of 12-‐15%. We opine that given the rela0ve scarcity of transac0ons, the price drop has been somewhat higher; in both the listed and transacted space, there have been price drops of as much as 25% that have been recorded in the high end villa space.
• In terms of rental op0ons, horizontal living spaces allow more economical op0ons in the larger unit types (four and five-‐bedrooms) compared to apartments. In the apartment space four-‐bedrooms typically crossover in to the penthouse segment, making horizontal living a viable op0on for the end-‐user. This is the strongest indicator of the “suburbaniza0on” effect that is underway throughout the city as families make the decision to move away from city centers in order to capitalize on the rent/price differen0als.
Execu0ve Summary
2
Table of Contents A) Landscape of the Horizontal Living
B) Build or Buy C) A Closer Look into Price Ac0on
D) Arbitrage in Rents
E) Conclusion
3
4
Landscape of Freehold Horizontal Living
“We live in a society bloated with data yet starved for wisdom. We're connected 24/7, yet anxiety, fear, depression and loneliness is at an all-‐0me high. We must course-‐correct”
– Elizabeth Lindsey
5
5%
63%
32%
Landscape of the Freehold Horizontal Market
Exis0ng Supply Break-‐down Upcoming Supply Break-‐Down
6%
53%
41%
Mansions Villas Townhouses
A dissec0on of the horizontal space reveals that exis0ng supply in monitored areas is heavily skewed towards the villa segment. Historically, Dubai has been top-‐heavy, as developers launched projects to en0ce the affluent class, along with the investor category. However, as developers have recently shi`ed course towards the affordable segment, project launches such as Nshama Townhouses and Warsan Village pave the way for cheaper op0ons within the market. Such offerings have shi`ed the topography of upcoming supply towards townhouses.
Reidin & Unitas Reidin & Unitas
6
Supply Analysis of the Freehold Horizontal Living
-‐
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Exis0ng Supply Upcoming Supply
Townhouses
Villas
Mansions
Freehold Supply Analysis
In terms absolute numbers announced upcoming supply, thus by far revealing that horizontal living in the freehold market is expected to increase by 65%. We opine that with more supply in the pipeline, of horizontal space, especially in the ”suburbs” will double by the 0me of Expo 2020 is launched, leaving investors and end-‐users with an increasing array of choice.
Num
ber o
f units
Reidin & Unitas
Source: Market sources
7
Build or Buy
“If opportunity doesn't knock, build a door” -‐ Milton Berle
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Jumeirah Park The Villa Jumeirah Golf Estate
Furjan Emirates Hills Palm Jumeirah (Garden Homes)
Palm Jumeirah (Signature Villas)
Dubai Hills
8
Luxury Spaces have outpaced replacement values…
Replacement Value Community-‐wise (Factored in Rental Return)
Above Replacement Value
Below Replacement Value
Q-‐Ra0
o
Q-‐Ra0o = Market Value / Replacement Value
Tobin’s Q-‐Ra0o, a measure of market valua0on that measures how expensive markets are, reveals that as 0cket sizes go higher the ra0o moves higher as well. This is perhaps the strongest indicator that Dubai's real estate market has become top heavy. Even a`er factoring in the opportunity cost of yields, there is considerable “froth” at the trophy end of the market, sugges0ng that prices have to correct at this segment.
Reidin & Unitas
Buy Build
0
200
400
600
800
1000
1200
1400
Jumeirah Park The Villa
Build Buy
9
Buy Versus Build
High End Villas Mansions
An examina0on of communi0es at the high-‐end where build and buy op0ons are available, reveals that there is a negligible difference in the two op0ons at the high end space, once the opportunity costs of rental yields are factored in. This strongly argues for the “purchase” op0on rather than build. However, when a sample analysis is conducted at Mansion area (using Dubai Hills and Emirates Hills as a comparison) there appears to be a significant difference between the buy and build op0ons from an economic perspec0ve. This suggests that as “build” op0ons are more frequently exercised prices are expected to plateau or even so`en as sale values converge towards replacement levels.
Aed/Sq`
Aed/Sq`
Reidin & Unitas Reidin & Unitas
0
500
1000
1500
2000
2500
3000
Emirates Hills Dubai Hills
Build Buy
10
A Closer Look into Price Ac0on
“Mathema0cs as an expression of the human mind reflects the ac0ve will, the contempla0ve reason, and the desire for aesthe0c perfec0on. Its basic elements are logic and intui0on,
analysis and construc0on, generality and individuality” -‐ Richard Courant
11
-‐16.0%
-‐14.0%
-‐12.0%
-‐10.0%
-‐8.0%
-‐6.0%
-‐4.0%
-‐2.0%
0.0% Jumeirah Islands
Palm Jumeirah
Springs and Meadows
Emirates Hills
Arabian Ranches
Prime Villas City Wide
80
100
120
140
160
180
August, 2015
June
, 2015
April, 2015
February, 2015
Decembe
r, 20
14
Octob
er, 2014
August, 2014
June
, 2014
April, 2014
February, 2014
Decembe
r, 20
13
Octob
er, 2013
August, 2013
June
, 2013
April, 2013
February, 2013
Decembe
r, 20
12
Octob
er, 2012
August, 2012
June
, 2012
April, 2012
February, 2012
Decembe
r, 20
11
Octob
er, 2011
August, 2011
June
, 2011
April, 2011
February, 2011
Jumeirah Islands Palm Jumeirah Springs and Meadows Emirates Hills Arabian Ranches Prime Villas City Wide
Villa Prices already star0ng to fall towards replacement value…
Community-‐Wise Price Index Peak to Trough (Price Change)
An analysis of the villa segment shows that prices from the peak are down 10%, where as some communi0es such as JI and the Arabian Ranches have depreciated faster 15% and 12%. Although, the general index is an indicator for price direc0on, we opine that it does not reveal underlying dynamics where transac0ons are less common than in the apartment space; both in the lis0ngs as well as in the transacted space, prices in certain instances have corrected by as much as 25%. Emirates Hills has remained stable during this correc0on phase; we believe that prices here will correct inevitably as downward pressure is exerted towards replacement values.
Reidin & Unitas
Reidin & Unitas
12
50
70
90
110
130
150
170
Q2 20
15
Q1 20
15
Q4 20
14
Q3 20
14
Q2 20
14
Q1 20
14
Q4 20
13
Q3 20
13
Q2 20
13
Q1 20
13
Q4 20
12
Q3 20
12
Q2 20
12
Q1 20
12
Q4 20
11
Q3 20
11
Q2 20
11
Q1 20
11
Q4 20
10
Q3 20
10
Q2 20
10
Q1 20
10
Meadows
Springs 80
90
100
110
120
130
140
150
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Alma Townhouses
Golf Homes
Villas Systema0cally Outperform Townhouses
Springs Vs Meadows Price Index Alma Townhouses Vs Golf Homes Price Index
A closer look into price ac0on between the villa and townhouse space, reveals that systema0cally the former has outperformed the la*er. This trend highlights the rela0ve scarcity of supply, as well as the fact that there has been a greater incidence of end user purchases in the former space.
Index
Index
Reidin & Unitas Reidin & Unitas
13
Arbitrage in Rents
“Markets are constantly in a state of uncertainty and flux and money is made by discoun0ng the obvious and beung on the unexpected” – George Sores
14
180,000
200,000
220,000
240,000
260,000
280,000
300,000
320,000
340,000
360,000
380,000
Palm Jumeirah
Marina Downtown Business Bay Arabian Ranches
Springs The Villa Furjan
Four Bedroom RERA Rental Rates (Min-‐Max)
Need a Four Bedroom to Rent … Go Horizontal
A rental analysis across apartments and villas reveals that the la*er has cheaper op0ons when looking for a four-‐bedrooms to rent. In the apartment space typically a four-‐bedrooms crossovers into the penthouse segment increasing rent significantly. This highlights the “suburbaniza0on” effect that is currently underway in the city, as an increasing percentage of families choose to move into areas that are not in the city center to capitalize on rent differen0als.
Apartments Villas Aed
Reidin & Unitas
Source: RERA
15
150,000
200,000
250,000
300,000
350,000
400,000 Horizontal Living RERA Rental Rates (Min-‐Max)
The Crossover Effect in the Horizontal Space
3 bedrooms 4 bedrooms
The above chart depicts the crossover op0ons from a three-‐bedrooms to a four-‐bedrooms in the villa segment keeping the budget constant. For example, a tenant could move from a three-‐bedrooms in The Meadows to a four-‐bedrooms in The Villa project without increasing their budget. Most of the op0ons exist on the Sheikh Muhammad Bin Zayed corridor highligh0ng the suburbaniza0on effect that is underway.
Aed
Reidin & Unitas
Source: RERA
Conclusions Landscape of Horizontal Living Build or Buy
A Closer Look into Price Ac0on Arbitrage in Rents
Tobin’s Q-‐Ra-o, a measure of m a r k e t v a l u a - o n t h a t measures how expensive markets are, reveals that as -cket sizes go higher the ra-o moves higher as well.
In the horizontal space, the Q-‐Ra-o shows an upward sloping curve implying that it is cheaper to build in the mansion space and buy in the luxury villa segment.
A cross segment rental analysis between apartments and villas reveals that the la*er has a wider array of affordable op0ons when it comes to the four-‐bedrooms space. Such op0ons proliferate along the SMBZ corridor and highlight the “suburbaniza0on“ effect that is currently underway in the city. We opine that this trend will manifest itself both in the rental and the price segment as end users start to exercise op0ons in a market that offers them an increasing array of choice.
A supply side analysis of upcoming supply, thus by far, reveals that horizontal living in the freehold market is expected to increase by 65%. A dissec0on of the horizontal space reveals that exis0ng supply in monitored areas is heavily skewed towards the villa segment. However, as developers have recently shi`ed course towards the affordable segment, project launches such as Nshama Townhouses and Warsan Village pave the way for cheaper op0ons within the market.
Tobin’s Q-‐Ra0o (a measure of valua0on) reveals an upward sloping curve, which is perhaps the strongest indicator that the market has become “top heavy”. In the high end villa space there appears to be a negligible difference between the build or buy scenarios; however there appears to be a considerable gap in the mansion space. This indicates that there will be price declines as values converge towards replacement value.
An analysis of the villa segment shows that prices from the peak are down 10%, where as some communi0es such as JI and the Arabian Ranches have depreciated faster by 15% and 12%. This trend is expected to con0nue, especially in the trophy segment of the market as end users look towards building high-‐end and luxury villas given the availability of such op0ons.
REIDIN.com is the leading real estate informa0on company focusing on emerging markets. REIDIN.com offers intelligent and user-‐friendly online informa0on solu0ons helping professionals access relevant data and informa0on in a 0mely and cost effec0ve basis. Reidin is the data provider for these research reports Concord Tower, No: 2304, Dubai Media City, PO Box 333929 Dubai, United Arab Emirates Tel. +971 4 433 13 98 Fax. +971 4 360 47 88 www.reidin.com [email protected]
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