Dubai is facing a shortage of villas and townhouses due to an influx of high-net-worth individuals in the post-pandemic period and the fact that many expatriates are now looking to settle down on a long-term basis.
Industry executives suggest that foreign residents who plan to make the UAE their home on a long-term basis prefer bigger villas, townhouses and amenities that can cater to the entire family.
Meanwhile, property developers also focus on apartments due to astronomical costs linked to villa community developments and higher profit margins offered by high-rise apartment towers.
As reported by Khaleej Times earlier, villa prices in Dubai’s 10 most popular communities have more than doubled in the past four years, according to the latest data released by global real estate consultancy ValuStrat.
Arabian Ranches, Dubai Hills Estate, Emirates Hills, Green Community West, Jumeirah Islands, Jumeirah Park, Palm Jumeirah, The Lakes, The Meadows and Victory Heights saw capital values of villas jumping more than 100 per cent since 2020-21 till July 2024, it said.
Allsopp & Allsopp’s third-quarter 2024 data showed villa and townhouse sales made up 20 per cent of sales transaction volume and accounted for 42 per cent of total market sales value, with demand continuing to outweigh supply across residential communities. Hence, the imbalance between demand and supply could suggest potential price increases over the coming months.
The most popular areas for villas in the last quarter were Jumeirah Golf Estate, The Springs, Dubai Investments Park, Arabian Ranches and Al Reem, it said.
Dubai has seen a record influx of millionaires in the past three and a half years, attracting thousands of high-net-worth individuals from different parts of the world. These millionaires bought villas, townhouses and luxury apartments either to live in them or for investment to cash in on high rentals.
Why shortage?
Issa Abdul Rahman, CEO of Kasco Developments, says the shortage is felt across every residential community, particularly in areas like Dubai Hills and Arabian Ranches.
“I suspect two primary reasons for the general villa shortage – the influx of expat families in the city and the increase in previously ‘temporary’ expats that are now looking to settle down and build roots in Dubai. These areas in particular are popular with newer expat communities,” adds Abdul Rahman.
Yogesh Bulchandani, founder and CEO of Sunrise Capital, said the popular villa areas, like Villanova, Green Community DIP, Jumeirah Village Triangle, Six Senses The Palm, Dubai Hills and Pearl Jumeirah water community villas, have high demand.
“These neighbourhoods are highly sought-after due to their luxurious amenities and family-friendly environments, leading to increased demand that outpaces supply,” he said.
Bulchandani attributes the shortage to a combination of high demand from affluent buyers, limited land availability for new developments, and a growing preference for spacious living environments post-pandemic. “Additionally, the appeal of these areas for expatriates and families further exacerbates the demand.”
How big is the shortage?
Driven by the rapid population growth and an influx of expatriates seeking luxury living options, Sunrise Capital's founder said there is an urgent need for new developments to meet market demands.
“Recent reports indicate that Dubai is facing a shortage of approximately 10,000 villas,” he said.
Echoing his industry peer, Abdul Rahman of Kasco Developments also sees a similar number of shortage of villas.
What villas are in high demand?
According to Abdul Rahman, the price bracket of Dh3 million to Dh5 million is particularly in demand, as it strikes a balance between affordability, quality living space and proximity to the city’s main hubs.
Bulchandani said this price bracket attracts both investors and families looking for spacious homes in prime locations, making it a competitive market with limited availability.
How much do villas offer as a ROI?
Villas generally offer lower returns compared to apartments, with average yields of around 6 per cent versus 8 per cent for apartments. “This translates to approximately Dh180,000 for villas compared to Dh240,000 for apartments annually as per average rental value,” added Bulchandani.
Abdul Rahman sees villas typically offer, on average, around 5 per cent compared to 7 per cent for apartments, translating to an average difference of approximately Dh150,000 versus Dh200,000 annually. “However, villas are soaring and historically they tend to appreciate more than apartments, to an extent that more than makes up for the difference in yield,” he added.
Abdul Rahman added that villas and townhouses in Dubai are typically developed within a master-planned project.
“The upfront investment alone to develop such a project is astronomical, not to mention the more complex logistics and infrastructure development required. They also have a longer development and turnaround timeline. These and other factors mean that the projects are beyond the financial capacity and expertise of most developers in the country. In contrast, an apartment building is much cheaper to invest in, easier to build and faster to complete,” said Kasco’s chief executive.
Yogesh Bulchandani elaborated that developers often prioritise high-rise apartment tower projects due to higher profit margins and quicker returns on investment.
“Additionally, the complexities of land acquisition and construction for villas can deter developers from entering this segment, especially in a rapidly changing market like Dubai,” he added.
For a detailed perspective on the property market, visit: Dubai - VPI Residential Capital Values - September 2024
