Every time there is a rise in demand of properties in the real estate market of Dubai, middle-income families end up priced out because developers increase their profit margin.
There are signs of ‘overheating’ in the emirate’s real estate market, which can be seen in the prices of a studio apartment that lie between Dh800,000 and Dh1 million.
Market analysts and officials have said that investors who are purchasing property at the current price may not be able to sell it at the same price if there is a softening in the market in the coming years.
Rental income
The annual return from a studio apartment bought at a price of Dh800,000 is about 5%, as it goes as high as Dh40,000, not taking into account the service charge.
If the service charges are also added, then the rental income is around Dh32,000, which means that the annual return on an investment of Dh800,000 is less than 4%.
This could make real estate investment ‘uneconomic’ because there are other investment products capable of generating higher returns.
DugastaProperties Development, a property developer based in Dubai, is introducing affordable homes and a studio apartment will have a price of Dh400,000.
In addition, they are also offering 8% guaranteed annual return for the first five years, based on some terms and conditions, for all kinds of apartments, whether Studio, 1-bedroom, or even 2-bedroom.
Re-balancing the real estate market is the goal, along with attracting new buyers who had previously been priced out because of the high cost, particularly families with fixed incomes.
Dugasta’s plan
Moreover, if the buyer is interested in selling the property after the five-year period, then Dugasta is also offering a buy-back option, which will be subject to terms and conditions.
The Chairman and Founder of Dugasta Properties, Tauseef Khan, said that this deal would mean that the buyer or investor would be able to get about 40% of their investment back within the first five years.
He said that if the investor or buyer want to sell, they would have the buy-back option.
He added that even though there were higher prices of properties in the market currently, they were brining an attractive and comfortable price point.
This was to facilitate middle-income families in buying their dream homes and they think their pricing would be sustainable in the long term, even if the market softens.
The real estate sector
The first half of 2023 saw the total number of property and land transactions in the real estate sector in Dubai reach 76,119 and were valued at Dh283 billion.
In the same period last year, the total number of transactions had stood at Dh160 billion, which meant there was an increase of 76.87%.
The growth in the market is unusually strong and this is not just because of the increase in sale, mortgage and resale of properties, but also due to the rise in the value of transactions and properties.
Effectively, this means that there has also been a rise in the value of average transactions as opposed to the same period in the previous year.
