A dissection of Dubai’s horizontal living space reveals that existing supply is heavily skewed towards the villa segment (63%) versus townhouses (32%) and mansions (5%). Dubai has become top-heavy, as historically, projects were concentrated at the higher-end enticing the leisure class and investors. However, developers have shifted course to service the mid-income housing segment in the last year, trying to correct the lopsidedness that currently exist within the market. A granular analysis of up-coming supply reveals that there is a higher concentration in the townhouse space compared to the historical topography, implying a shift towards affordability is under way.
An analysis of horizontal living in the luxury villa and mansion segment reveals an upward sloping Q-ratio curve (market value/cost value). This implies that there is a likelihood of prices at the higher end falling as prices converge towards replacement value.
Price correction is already underway, with indices revealing an average price fall of 12-15%. We opine that given the relative scarcity of transactions, the price drop has been somewhat higher; in both the listed and transacted space, there have been price drops of as much as 25% that have been recorded in the high end villa space.
In terms of rental options, horizontal living spaces allow more economical options in the larger unit types (four and five-bedrooms) compared to apartments. Four-bedroom apartment units typically crossover into the penthouse segment, making horizontal living a viable option for the end-users. This is the strongest indicator of the “sub urbanization” effect that is underway throughout the city as families make the decision to move away from city centers in order to capitalize on the rent/price differentials.