Dubai's new homes are shrinking as developers scramble to build more units amid rising land prices, pressure for affordable bills, and net-zero strategies.
New data shows the average new home is smaller than at any point in the past decade. A recent report from ValuStrat, using Dubai Land Department figures, found the average size of a home sold this year was 1,450 square feet, down from 2,087 square feet in 2021.
In contrast, the average price was Dh1,490 per sq ft – up from Dh889 in 2012 and the highest on record.
With the UAE's plan to be net zero by 2050 and rising land costs, developers are under pressure to build smaller, more energy-efficient units, with lower utility costs.
“The market is becoming less and less affordable, and buyers are getting less for their money at the moment,” said Haider Tuaima, head of real estate research at ValuStrat.
In 2008, at the start of the global financial crisis, one-bedroom units were typically around 1,100 square feet in Dubai’s property market. Today, one-bedroom homes can be as small as 500 square feet, he said.
As a result, home hunters are prioritising practical layouts and affordability over spaciousness. In low-rise apartment districts areas such as Discovery Gardens and The Greens, which are on the metro line and where there has been a rush of home renovations, values have surged.
Since the coronavirus pandemic, Dubai's population has surged, with at least 100,000 new arrivals in 2023 taking the total to about 3.6 million. The city has also seen a spike in demand for home ownership, as rents spiralled.
Wassim Abdallah, head of off-plan and investments at real estate agency Betterhomes, said major developers are reacting to increased demand from first-time buyers who have modest incomes and are seeking smaller downpayments.
“Developers like Damac and Emaar recognised that many potential buyers wanted to live in prime areas but couldn’t afford larger units,” he said. “Instead of lowering prices, they reduced the size of the units, creating a more affordable entry point.”
It can cost Dh2,000 to Dh3,500 per month to cool a three-bed apartment in the summer, according to the Dewa Tariff calculator. However, Mr Abdallah said cheaper bills may be a factor, but not a major one.
“While it's true that smaller properties offer savings on utilities, electricity, water and maintenance, these are secondary reasons for purchasing,” he said. “The primary benefit is that these smaller units have created affordability for lower-income buyers in desirable locations developed by master developers.”
Amjad Hariz, chief executive of SEE developers, linked to the SEE Institute Hub of Sustainable Education and Research, told The National that developers were looking to cut the costs of raw materials, and at the same time make more homes more practical.
Renters scramble to get on ladder
In March, Sarah Sayed and her fiancé Mahmoud Obeid were planning to rent a two-bedroom apartment close to their workplace in Silicon Oasis. By August, they had become homeowners and received the keys to their two-bedroom loft.
The apartment, which is part of a new community called Rukan in Dubailand, is 1,700 sq ft in total, with the home spread out over 800 sq ft and the terrace at 900 sq ft.
“It’s very small. I always say it’s a bedroom-and-a-half apartment,” Ms Sayed said. The “half” bedroom is being used as an office/storage space.
Although the market price was roughly Dh1.1 million, the couple were able to buy it for Dh900,000 from a seller who needed to relocate. They put down a Dh178,000 deposit to secure it.
To buy the property, the couple had to make some sacrifices. “I had to let go of credit card limits, sold lots of gold, and requested all our wedding gifts to be cash,” Ms Sayed said.
The buying process was far from smooth. “There were so many additional fees that kept coming up – service charges, admin fees, and other hidden costs we hadn’t planned for.” The fees amounted to approximately Dh50,000, and also included developer charges, trustee fees, and Dubai Land Department (DLD) registration expenses.
Yet, despite the hurdles, the couple are relieved to own their home as rents rise. They also enjoy the community. “I'm really excited to be away from the traffic. There's communities all around with a petrol station outside. It's well connected and has good amenities, it's very secure, people around us are small families, and everything delivers,” she said.
While it will take them 25 years to pay off the mortgage, they see their home as a long-term investment and hope to upgrade to a villa or a town house once their family grows.
Booming market
Dubai’s property market has been booming in recent years on the back of government initiatives such as residency permits for retired and remote workers and the expansion of the 10-year golden visa programme.
Rents and property prices increased in the emirate during the second quarter of this year, according to the latest report from property management company Asteco.
Apartment and villa rental rates increased by 8 per cent and 4 per cent, respectively, while apartment sales prices rose by 5 per cent and villa prices by 8 per cent, Asteco said.
Dubai Land Department registered 32,109 transactions in the second quarter of this year, up 32 per cent compared to the same period last year. The total sales value surged 23 per cent year-on-year to Dh63 billion.
With Dubai's population projected to reach five million by 2030, demand is likely to remain strong. The population is “growing considerably, with talks of 100,000 to 150,000 new people arriving each year”, Mario Volpi, real estate veteran and head of brokerage at Novvi Properties, told The National. This growth tips the demand in the developers’ favour, creating a mix of new renters and buyers to absorb the number of units being delivered, he said.
A recent report by Betterhomes revealed that long-term residency in Dubai is on the rise, with 89 per cent of residents planning to stay in the city for more than five years and 66 per cent intending to remain for over a decade. This trend is driving developers to focus on functionality and affordability rather than space, it said.
“We’re seeing homes get smaller, but it’s primarily about maintaining affordability amidst rising land and building costs,” said Elsa Angelo, marketing specialist at Betterhomes.
Mr Volpi also agreed that the shift towards smaller homes is a direct response to increased construction and land costs.
“Developers are building smaller units to keep the overall price tag affordable for buyers, even if it means compromising on square footage,” he said.
To maximise land use, developers are turning to more compact designs. “Ten years ago, a developer might have built six houses on a plot; today, they build 10,” Thomas Paulson, sales director at Haus & Haus, said.
People will still choose to live in smaller homes if it is more affordable because not everyone can afford the rising costs of larger villas or town houses, he added.
Also, when compared with cities like Hong Kong, Singapore, London, or New York, Dubai still offers a lot more value for money, according to Mr Volpi.
“A million dollars will buy you far more square footage here than it would in any of those cities,” he said. “In the UK, a two-bedroom cottage might be 800 square feet over two floors. That’s normal. Here in Dubai, 800 square feet used to be the size of a one-bedroom, and in some cases, it still is, but more often you’re looking at much smaller units.
“In the end, a three-bedroom house is still a three-bedroom house, even if the rooms are smaller than before,” said Mr Volpi. “So, the strategy of building smaller houses seems to work. After all, it is up to the buyer what they wish to do with the space,” he said.
For a detailed perspective on the property market, visit: Dubai - Real Estate Review Q3 2024
