A real restate conumdrum: space and affordability

25-Apr-2018 | By: Hina Navin- Gulf News
While the growing number of competitively priced housing in Dubai has opened the property market to a much larger slice of the population, it also comes with a consequence: smaller residences. The days of “bigger is better” catchlines are now being replaced by the greater focus on space and cost efficiency.

This shift, however, is not unique to Dubai, says Pawan Batavia, CEO of Synergy Properties, who points out similar development trends in major cities around the world.

“The average property sizes in Dubai are still more than in the other major cities like London, where the average size for a one-bedder is 30 sq m, and 40 sq metre for a two-bedroom apartment.”

 Batavia adds: “Space optimisation is key for all developers that make the end product affordable while making sure that users get maximum advantage of every square foot they pay for.”

Mario Volpi, sales and leasing manager at Engel & Volkers, points out that in terms of price per square foot, smaller units actually come out more expensive, although buyers are more concerned about the total price. “In an off-plan development, a 360-sq-ft studio selling for Dh400,000 will be snapped up first even though the price per square foot is over Dh1,100, when the norm is Dh1,000, for instance,” says Volpi. “Developers are making the units smaller for the only reason that the ticket price then seems more affordable or reasonable.”

Entry route for buyers

Apart from giving more end users an opportunity to take a first step onto the property ladder, Lewis Allsopp, CEO of Allsopp & Allsopp Real Estate, says smaller units are also getting strong interest from investors. “They also make excellent investment options, so even if it’s for end use in the short term, if you want to take the next step on the ladder, or if you’re leaving Dubai and want to keep an investment, these properties will always sell and lease well,” says Allsopp.

When evaluating price versus size, Allsopp says two things are important: location and the incentives offered by the developer.

“If the property is of a smaller size, not cheaper but in an incredible location, then the property will still sell well,” says Allsopp. “If it is in the wrong location, then it’s going to stick in the market, as many attractive options are available and a buyer isn’t forced to settle because of a lack of choice. [Buyers want to know] how many amenities are there in the development. Are there cafes and restaurants? Is there a park and children’s play area? What else is on the doorstep? These are all questions a buyer will ask and all form part of the decision-making process.”

Efficient space utilisation

With smaller sizes, developers are now using space more efficiently and eliminating wastages, which have also resulted in lower annual maintenance fees for residents, says Rajiv Ghanekar, senior real estate broker at Keller Williams Real Estate Dubai. “Pick up any new project and you will see the enclosed kitchen space and the guest toilet or the powder room have made its way out of the floor plan,” notes Ghanekar. “As an example, by simply eliminating the guest toilet from a one-bedroom apartment in Downtown Dubai, there is space saving of 50-60 sq ft, resulting in a price reduction of Dh90,000-Dh100,000.”

While the developer needs to be mindful of the size of the property, Atif Rahman, director and partner of Danube Properties, says affordable housing is not just about reducing the size of the property.

“We need to deliver livable space and not matchbox-size units to make them cost-effective,” says Rahman. “It is about space planning and area efficiency. There are two key areas of focus when designing affordable homes; how to bring down the construction cost and how to deliver more usable space in less square footage. Also, the maintenance cost and durability of material used must be considered, as affordable homes target cost-conscious consumers.”

Rahman says some new developments are now largely focused on delivering affordable homes by simply reducing the size of the property and compromising on amenities.

“If it is for low-income housing, its fine, but if you are targeting the mid-income segment then these properties are going to largely struggle with high vacancy upon delivery, which will result in lower return in investment, thereby depreciating the asset value,” says Rahman. “Also, many property buyers are unable to imagine the size and design at the time of purchase, so it is the developer’s responsibility to deliver the best possible value and efficiency in the property.

“There is also a recent observation in some properties where the unit has been planned with almost 50 per cent allocation to the balcony, meaning your balcony is as big as the apartment. These properties may look fine with the total size, but will under-deliver the apartment size. Hence, the buyers need to look prudently at all the details before deciding.”

Value returns

As the market becomes more competitive, investors are increasingly looking at high rental income, which has led to a rise in the demand for right unit sizes. Taking this into account,

Imran Farooq, CEO of Samana Developers, notes that studios and one-bedroom apartments with the right sizes have been selling the most.

“Developers are optimising the sizes, which will offer a greater rental return of 8-10 per cent,” says Farooq. “This trend is desirable for investors because they are looking at much better yield. The studios could give returns of up to 10-11 per cent, and the one-bedroom apartment can give a rental return of 8 per cent and above for potential buyers.”

To help achieve good returns, Rahman adds that the property it must be designed keeping in mind the end user, and not just the buyer, who may not be the final occupant of the property.

“The real estate transforms into a fantastic asset if the end users like the property and such properties will deliver a large return on investment,” says Rahman. “For example, if I bought my property for self-use, I still expect it to grow in value, thereby building equity, which I will be able to use to my liking in the future.”

Micro units

Zorro Ghura, senior global property consultant at Gulf Sotheby’s International Realty, says buyers now look for quality finishes, low entry price and flexible payment terms, while developers are catering for these new buyers by offering suitable options.

“Some developments are even making micro-units to keep the price as low as possible to attract local and international investors,” says Ghura. “Developers estimate higher returns due to this, and it attracts more investment. However, I don’t believe this will last because with rents also becoming more affordable, tenants today are being very demanding with price versus size.

“Eventually, it could hurt the investors with properties being vacant much longer. Moreover, end users look into the size and dimensions of a unit as they are buying a home to live in and not just an investment. Hence, most end users will stay far away from micro-units.”

Ghanekar says the trend of building micro-units may have come from urban property hotspots such as New York, Hong Kong, London and Mumbai. “The target audience for these developments is working professionals who spend 13-15 hours out of home, and hence for them a smaller-size apartment would be huge on savings,” he says. “What the tenants and end users would prefer depends on their preferences that are unique and very individual. However, it is good to have a mix of options on the market and let the final user decide and choose what best matches his or her preference and pocket.”

Improved layouts

Ghura says developers are now making more optimum use of space with the help of international architects and design teams that operate in Dubai. “Developers are they optimising the area to have as many units in a development to maximise profits and keep the pricing down to attract new audiences to invest,” he says.

“Smaller-size units are not always cheaper on price per square foot, which most new buyers do not look at,” says Ghura. “But it is essential to study the development and the area where it is located because you sometimes end up paying up to 20 per cent more than the market price per square foot in that area without realising it because the selling price of the unit might sound attractive.”

Ghura advises buyers research an area they are looking to invest in and to understand the average price per square foot. Sometimes it is worth paying more to have the right layout and size, he says.

Credit by: Gulf News

Image Credit : Emirate 24/7



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