Fancy owning an underwater villa or an apartment in the clouds or a floating house on a private man-made island? The place to search for such unusual luxury properties is the GCC region, primarily Dubai and Doha. The price? Millions! And it does not matter what currency we are talking about.
For instance, if an apartment on a 101st floor of the tallest building in the world, Burj Khalifa, sounds appealing to you, you will have to pay anywhere between USD 940,000 for a one bedroom apartment on a lower floor, to USD 8.5 million for a four-bedroom penthouse. And if one apartment is not enough, there is a possibility to buy a whole 1,428 sq. m floor of an 828 metre high Dubai tower, for a little more than USD 19 million.
The luxury property market in the GCC region is, despite past and more recent grim predictions, alive and well. Yes, Dubai’s luxury residential property prices dropped around six percent end of last year, but according to real estate consultancy Knight Frank’s Prime International Residential Index (PIRI), in the same time they rose by 14.7 percent in Abu Dhabi, by 13.2 percent in Muscat, by six percent in Riyadh and 5.3 percent in Doha.
So now is the time for all of those dreaming of a luxury living space in the Emirate to invest, because the prices of apartments have, according to industry experts, dropped by 20 percent compared to 2008. As a comparison, USD 1 million spend in a high-end property in Dubai will buy around 145 sq. m, and that makes a decent apartment, while in Monaco for a same amount of money a luxury resident seeker will get only 17 sq. m.
There is no shortage of potential luxury resident owners. According to advisory firm Wealth-X research from April titled ‘State of the Ultra High Net Worth Market’, around the globe there are 211,275 UHNWIs (ultra high net worth individuals: those with a net worth of at least USD 30 million) and combined, they hold a net worth of USD 29.7 trillion.
There are also 15.8 million HNWIs (high net worth individuals: those with a net worth of USD 1 million to USD 29 million), and they possess USD 42.1 trillion of net worth. It is estimated that the total value of the world’s real estate is around USD 180 trillion; some 72 percent of which is owner occupied residential property.
In the Middle East, according to WealthInsight’s new report, ‘Business strategies for targeting HNWIs and UHNWIs in the Middle East’, the number of millionaires in the region is to reach 226,809 by 2019. The report states that the HNWI population in Qatar is one of the fastest growing in the region, recording a review-period compound annual growth rate (CAGR) of 8.9 percent between 2010 and 2014.
Millionaire population in the GCC grew by a CAGR of 8.1 percent from 136,195 HNWIs in 2010 to 185,816 HNWIs in 2014, and WealthInsight forecasts that the number of millionaires is expected to exceed 220,000 by 2019. The number of HNWIs in Qatar, Kuwait, Oman and Saudi Arabia is forecast to grow at a CAGR of more than 4 percent till 2019. UAE, according to Wealth-X, had the biggest increase in the world (of 21 percent) of UHNWIs between 2003 and 2013.
According to global real estate markets researcher DTZ Company, the high-end of Qatar’s residential market including West Bay and The Pearl Qatar, has seen a number of new developments in 2014. This has resulted in rental levels stabilizing for some apartment types following the strong increases witnessed in 2013.
The current levels of prime apartment stock reached approximately 14,600 units by the end of 2014, said DTZ, predicting an increase in the number of high-end units by 40 percent. The biggest buyers of high-end properties in Qatar are Qatari and GCC nationals, and when it comes to prices, DTZ said that there is evidence of sales transaction on the Pearl-Qatar reflecting prices of more than USD 4.944 per sq. m for premium units.
The meaning of luxury environment
In the experience of Knight Frank’s Senior Negotiator Gregory Lewis, the most prominent buyers of high end properties in the Gulf region are Indians. “They are followed by GCC nationals and then the British”, he tells bq, adding that the sales of residential real estate is steady in the price range between USD 1 million and USD 3 million, and there is a jump to a price range from USD 8 million to USD 12 million.
When it comes to Dubai, according to data from Dubai Land Department, Saudi investors are the top buyers –spending USD 925 million on property in the Emirate between January and June 2014. Qataris purchased USD 408 million worth of property; Kuwaitis USD 228 million; Omanis USD 131 million; and Bahrainis USD 67 million. In the same period, Indians spent nearly USD 2.8 billion on Dubai property, while British and Pakistani nationals cashed out USD 1.5 billion and USD 1.2 billion respectively.
Niall McLoughlin, senior vice president of Damac properties, one of the leading luxury developers in the Middle East, describes the luxury real estate market in Dubai as buoyant, with a host of high-end options available across various locations each offering a different interpretation of what luxury means.
“Damac Properties has always delivered luxurious property to savvy buyers who understand the true meaning of what a luxurious living environment is meant to be. Buyers from the likes of India and Pakistan are increasingly looking to set up a second home in Dubai, given the proximity and quality of life the city offers. This has helped the luxury end of the Dubai property market growth, as the market matures and buyers become more demanding in the level of expectations.
We have seen a huge level of interest in our luxury portfolio in the past eighteen months, and have reported some of our strongest ever sales figures. Our luxury master developments, Akoya by Damac and Akoya Oxygen have proved popular as we offer a green, community environment with lots to see and do, which is a new luxury concept for Dubai,” he says.
McLoughlin says the demand for luxury property is strong – in particular private villas – in the USD 1.3 million to USD 2.7 million price range. “As the market has matured and prices have stabilized, there is a drive for buyers to ensure they are getting the highest luxury at an attractive rate – even if that means taking on a smaller unit.
When we move up the price scale to our branded, luxury residences in collaboration with the likes of Versace, Fendi, the Trump Organisation and Paramount hotels & resorts, buyers are getting a full interior environment from some of the most respected luxury brands in the world. We also provide options for buyers to invest in a mansion in our Akoya by Damac development which we can build for the buyer or for them to build the home of their dreams”.
Buyers form across the GCC make up a large proportion of the company’s buyer base, but they also have a high level of interest from other countries such as India, Pakistan, the United Kingdom, and across the world. “We have buyers of more than 120 nationalities and this is growing all the time as Dubai becomes known as a truly global city. We also see that when airlines such as Emirates and Etihad launch new routes, we will see buyers from that country looking to invest,” he says.
Emirates Investment Bank report, ‘GCC Wealth Insight Report 2015’, found that the HNWIs from the Gulf region consistently allocate more of their wealth into their own business and real estate rather than into stocks and bonds – 30 percent of them invest their wealth in real estate, up 5 percent from 2014.
When asked how they would distribute an additional USD 1 million unexpected excess income, HNWIs said they are likely to allocate into real estate (35 percent in 2015 and 37 percent in 2014) or in their own business (30 percent in 2015 and 27 percent in 2014). Also, eight in ten expect to increase investments in real estate (81 percent) and two thirds expect to increase investment in their own business (64 percent) in the near future.
But not just anywhere. Talking about the most desirable locations in the Gulf, Lewis points out to the Emirates Hills, often called the Beverly Hills of Dubai, and Dubai Palm, where last year, according to the local media, property deals were worth more than USD 135 million, and the average price was more than USD 550 per sq. foot. According to McLoughlin, branded real estate developments also drive valuations.
“A study by Knight Frank showed that branded properties can be 25 to 30 percent more valuable than un-branded units close-by. We have already seen that with huge customer response to our branded living experiences. It is important to note that only very exclusive, desirable brands can be used in real estate brand extensions. Damac Properties only works with best-in-class global lifestyle brands to deliver an exclusive, ‘limited-edition’ collection of luxury living experiences across the region.
By offering villas and apartments with interior designs and styling from the likes of Versace, Fendi, Paramount Hotels & Resorts and the Trump Organisation, we are able to present very exclusive environments tailored to those international buyers that really understand and strive for luxury and quality”, he explains adding that Damac works with the well-known luxury brand names because of their long-standing history in fashion and lifestyle as well as the stunning home ranges they produce.
Mortgage restrictions more important than the oil slump
The UHNWI and HNWI’s love affair with property is a never ending story. Knight Frank’s, ‘The global luxury residential real estate report 2015’, reveals that 79 percent of the world’s UHNW population owns two or more residences, and secondary residences are 45 percent more valuable and twice as large.
Also, USD 2.9 trillion of the world’s UHNWI wealth is held in owner-occupied residential real estate assets. From 2013 to 2014 the value of these residential real estate assets grew eight percent, and in 2014, seven percent of the world’s wealth was made through real estate, up five percent from the previous year. Between the third quarter of 2013 to the same period in 2014, luxury residential real estate grew two percent faster than the entire real estate market.
Confirming the Knight Frank’s findings, McLoughlin says that almost one third of Damac Properties’ buyers are repeat buyers, which is a large percentage of their base. “Many will buy their first property for investment; see the returns that can be achieved and go on to purchase more units – even full floors, while other buyers are coming to us to build them a luxury home.
We certainly have many buyers that have followed us through our lifecycle, initially purchasing private apartments in Dubai Marina, and they are now proud owners of our hotel apartments units, own villas in our master developments and even invest in our hotel portfolio”, he says.
Interestingly enough, Knight Frank’s report reveals that significant number of UHNWIs has the means to purchase a property with cash, but many choose to take on a mortgage instead, and that has had an impact on Dubai’s luxury property market. The UAE Central Bank has implemented stricter rules for those buying residential property worth over USD 1.3 million:
if a first-time expatriate buyer was to purchase a property above that value, he would need to raise a 35 percent deposit.
Lewis says that mortgage restrictions had a bigger influence on the Emirate’s high-end property sales than the oil slump.
According to McLoughlin, the change in the oil price has meant a small reduction in investment from some countries, while at the same time seeing an increase for others. “Manufacturers in India for example are benefiting from the reduced oil price and therefore have more capital to invest in Dubai real estate. We have seen that Dubai is blessed in that it has always benefited from global events.
During the Arab Spring, many Arab nationals were looking to move to Dubai, now as the oil price has dropped we have seen an increase in interest from industrial nations. Dubai is a safe-haven, with a perfect geographical location to link the east and the west and it is these fundamentals which drive the market forward,” he concludes.