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The Theory of the Leisure Class: A Look into Emirates Hills
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1 Office No. 103, The Palladium, Plot No. C3, Jumeriah Lake Towers, Dubai, UAE Office No. 103, The Palladium, Plot No. C3, Jumeriah Lake Towers, Dubai, UAE Execu ve Summary
• A look into the most pres gious community in Dubai, Emirates Hills, reveals that its plot prices have out-performed any other real estate product by a factor of nearly 3x since the incep on of Freehold. These staggering returns that have accrued to investors and end-users are inline with other blue-ribbon communi es around the world. For instance Beverley Hills has appreciated by 50%, whereas the the average US price index has remained flat lined over the last 10 years.
• A min-max analysis of Emirates Hills reveals that the gap has doubled in transacted villas over the last 5 years. This widening of the gap can be a ributed towards the underlying proper es that have been constructed in this community over the years. Moreover it illustrates the demand that has and con nues to increase for “bespoke” villa communi es with a gilded address code.
• A granular break-down of the community reveals that majority of the villas are distributed between Sector E and P, which accounts for nearly 1/3rd of the en re supply. Moreoever, a price analysis of lis ngs show that Sector R has the highest price per square foot rate followed by W and V. Whilst this breakdown may somehow shed some light on the rela ve “premium” of these sectors, the vastly differing sizes of the villas in each of these areas plays a far larger role in the listed and transacted prices.
• A transac onal ac vity analysis of the community over the last 5 years reveals that cash transac ons accounted for 80% of ac vity. However, in the last 18 months, there has been a spike in ‘other transac ons’ (which include refinances), which have coincided with the crash of oil prices. Due to the liquidity crunch prevalent in the market, we opine that this trend will con nue to grow as homeowners seek to mone ze the substan al home equity built in their villas.
• The recent op on of ultra-luxury villas, where you can build your own façade by Emaar has been in the form of Dubai Hills. A comparison between Dubai Hills and Emirates Hills plot prices, shows that he la er trades at roughly 1/3rd the price. An analysis of Emirates Hills during its development stages reveals that prices accelerated drama cally as surrounding infrastructure began to roll out. We opine that the same phenomena will transpire in Dubai Hills as surrounding infrastructure comes online. It will be likely be accelerated by demand from the upper strata that “missed the bus” on the price and development trajectory of Emirates Hills, and this ‘me-too’ phenomena. This explains the prolifera on of high income communi es such as al Barari and Pearl jumeirah which offer similar product. Contents
1 A Macro look into Emirate Hills
2 A Granular look Inside
2 Transac onal Analysis
3 Emirates Hills and Dubai Hills
A Macro look into Emirate Hills
"The bigger the risks, the be er off you are. Otherwise you're just boring.” – Billie Joe Armstrong
4 Emirates Hills Land has Appreciated More than 10 mes since its Launch
Return on Investment by Product Emirates Hills Plots Launch and Market Price (Aed/Sq ) 1600% 1400 UNITAS UNITAS 1400% 1200 1200% 1000 1000% 800 800% 600 600%
400% 400
200% 200
0% 0 Springs 4m JBR Studio Palm Jumeirah Emirates Hills Launch 2015 Villas (Plot)
A price analysis of launches in the first cycle, reveals that Emirates Hills plots out-performed any other real estate product by a factor of nearly 3x. Whilst this comparison is of ready units against land prices, it serves to highlight the staggering apprecia on that has accrued to investors in this blue ribbon community, far outpacing realized returns throughout the rest of the city since the advent of freehold in 2002.
This apprecia on at the trophy end of the market has been in sync with similar spikes witnessed in other parts of the world, where such premium gated communi es have been launched at the upper strata of the market. Beverly Hills Outperforms the Rest of the United States
Price Index (Beverly Hills Vs US Na onal Average) Price Index (Emirates Hills Vs Dubai) 180 180 Price Index Beverly Hills US Price Index Emirates Hills (Listed Price Index) Dubai Price Index 170 160 160
140 150 140 120 130 120 100 110
80 100 Zillow 90 REIDIN 60 80 2011 2012 2013 2014 2015 Jul 2007 Jul 2008 Jul 2009 Jul 2011 Jul 2015 Jul 2006 Jul 2010 Jul 2012 Jul 2013 Jul 2014 Jan 2007 Jan 2008 Jan 2009 Jan 2011 Jan 2015 Jan 2006 Jan 2010 Jan 2012 Jan 2013 Jan 2014
The above chart depicts the growth rates of Beverly Hills against the US price index. Since 2006 the US market has remained flat, while Beverley Hills has appreciated by 50%. This highlights the outperformance of ultra luxury proper es against the city wide performance. The price behavior in this instance is synonymous with that being witnessed in Emirates Hills.
More interes ngly, a comparison of Emirates Hills against the city wide index since 2011 suggests only a marginal outperformance of the former, implying that as op ons have opened up for end users and investors for similar blue ribbon communi es recently, the period of price outperformance may be coming to an end. We opine that Investors will increasingly shi their money flows towards upcoming blue ribbon communi es, thus arbitraging away the difference that currently exists.
Min-Max Analysis of Transacted Prices in Emirates Hills
Min-Max of Emirates Hills Transacted Prices 100,000,000.00 REIDIN 90,000,000.00
80,000,000.00
70,000,000.00
60,000,000.00
50,000,000.00
40,000,000.00
30,000,000.00
20,000,000.00
10,000,000.00
0.00 2010 2011 2012 2013 2014 2015
A min-max analysis of transacted prices reveals the the gap has doubled in the last 6 years. The widening of the gap is a func on of the large differences in the underlying proper es that have been constructed in this community over the years; it further serves to illustrate the demand that has and con nues to increase for “bespoke” villa communi es with a gilded address code. Such varia ons are the norm in communi es that develop organically, as opposed to being constructed by a single master developer. A Granular Look Inside
“The quasi-peaceable gentleman of leisure, then, not only consumes of the staff of life beyond the minimum required for subsistence and physical efficiency, but his consump on also undergoes a specializa on as regards the quality of the goods consumed” – Thorstein Veblen
8 Break-Down of Emirates Hills Supply Structure
Emirates Hills - Sector E 55
26 Emirates Hills - Sector H 6 204 Emirates Hills - Sector HT
70 Emirates Hills - Sector J
Emirates Hills - Sector L
Emirates Hills - Sector P
Emirates Hills - Sector R 105 Emirates Hills - Sector S 61 Emirates Hills - Sector V 31 51 13 Emirates Hills - Sector W
Emirates Hills is bifurcated into 10 sectors, where sector E and P account for approximately one third of supply. The 622 villas sizes vary from 10,000 too 45,000 square feet. The community is spread across lakes interspersed with a golf course, and values of differing villas are based on loca on within the community, although transac on values for the en re sector remains at a significant premium to the rest of the city because of the embedded premium that has been built into the address. Listed Prices of Villas by Sector
Listed Prices by Sector (2015) 3,800.00 3,546.10 REIDIN 3,600.00
3,400.00
3,200.00 3,059.86 2,944.40 3,000.00
2,800.00 2,716.94 2,598.00 2,591.22 2,600.00 2,573.52 2,600.00
2,400.00
2,200.00 2,125.50
2,000.00 Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills - Sector W - Sector V - Sector S - Sector R - Sector P - Sector L - Sector J - Sector H - Sector E
A granular analysis by sector of listed prices reveals that Sector R has the highest price per square foot rate followed by W and V. Whilst this breakdown may somehow shed some light on the rela ve “premium” of these sectors, the vastly differing sizes of the villas in each of these areas plays a far larger role in the listed and transacted prices. In point of fact, whilst there is a rela ve premium for golf and lake frontage villas, individual nuances of each villa seem to be the predominant weightage in determining the overall value of the price. Transac onal Analysis
“Life is made up of a series of judgments on insufficient data, and if we waited to run down all our doubts, it would flow past us” - Learned Hand
11 Transac onal Break-Down of Emirates Hills
Transac onal Ac vity by Type 100% Cash as a % of Total Mortgage as % of Total REIDIN 90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 2010 2011 2012 2013 2014 2015
The above charts depicts a granular transac onal analysis of the Emirate Hills area, illustra ng that the bulk of the transac ons (upwards of 80%) have been on a cash basis. However, we opine that this trend has already started to shi , with the surge in refinancing's, as illustrated in the next slide, a trend that will likely con nue, as end users seek to mone ze the substan al home equity built in. Spur in Refinances and ‘Other types’ of Transac ons as prices decline
‘Other Transac ons’ in Emirates Hills 7 120.00 REIDIN Others WTI 6 100.00
5 80.00 4 60.00 3 40.00 2
1 20.00
0 0.00 10/01 10/05 10/07 10/09 10/11 11/01 11/05 11/07 11/09 11/11 12/01 12/05 12/07 12/09 12/11 13/01 13/05 13/07 13/09 13/11 14/01 14/05 14/07 14/09 14/11 15/01 15/05 15/07 15/09 15/11 16/01 10/03 11/03 12/03 13/03 14/03 15/03
The crash of oil prices over the last 18 months has lead to a liquidity crunch in the region, which has coincided with a spike in ‘other’ types of transac ons, the predominant one being a ributed to ‘refinancing's’. In order to raise liquidity the fall in oil prices in Dubai therefore appears to be a reasonable proxy for liquidity condi ons, and the surge in refinancing reflect the market response to mone ze the “home equity” component that has become embedded in this community. Emirates Hills and Dubai Hills
“Look back over the past, with its changing empires that rose and fell, and you can foresee the future, too”- Marcus Aurelius
14 A comparison of Plot Prices of Dubai Hills and Emirates Hills
Plot Prices by Community (Highs and Lows) 1600 UNITAS high 1400 low 1200
1000
800
600
400
200
0 Dubai Hills Emirates Hills
A min-max analysis of plots in both communi es reveals that Dubai Hills plots trade close to 1/3rd the prices of Emirates Hills. This reflects the lack of development of the former, and as it develops, we opine that there will be a narrowing of the price gap between the two communi es. Dubai Hills Will Mirror the Price Ac on of Emirates Hills?
Current Supply Structure (2002-2015) 1600 UNITAS Emirates Hills 1400 Dubai Hills 1200
1000
800
600
400
200
0 Launch Par ally Developed Developed
The development of a community influences price ac on. The further the community is along its infrastructure roll out the higher the prices will escalate. This trend can be witnessed in the development of Emirates Hills. We opine as Dubai Hills begins to roll-out its ancillary infrastructure, prices will begin to trend upwards, mirroring the trajectory of Emirates Hills. This will likely be accelerated by demand from the upper strata that “missed the bus” on the price and development trajectory of Emirates Hills, and this ‘me-too’ phenomena partly explains the rise of other blue ribbon upper er communi es such as Jumeirah Pearl, where increasingly bespoke op ons are being made available for the end user in terms of construc ng their own villa. Dubai Hills Estate Following Same Trajectory as Emirates Living
Emirates Living Dubai Hills Estates
Number of Prices Aed/ Number of Prices Aed/ Community Type Community Type Units Sq Units Sq
Emirates Hills 622 2,500 Mansions Dubai Hills 520 1,700 Mansions
Meadows 2,162 1,580 Villas Sidra - 1,100 Villas
Springs 4,730 1,167 Townhouses Maple 610 1,000 Townhouses
Greens 3,245 1,322 Low-Rise Park Heights 700 1,100 Low-Rise
Views 3,340 1,600 High-Rise
REIDIN
The roll out of developments in Dubai Hills Estates is mimicking that of Emirates living. Both communi es share a similar structure of the master plan with the type of units.
However, In each instance the launch price of a Dubai Hills Estate projects is lower than the current prevailing prices of its counterpart in Emirates Living, making the former an a rac ve buy for investors and end-users. Conclusions A Macro Look into Emirates Hills A Granular Look Inside Since the launch of Emirates Hills plots prices Emirates Hills consists of 622 villas, spread over 10 have increased more than 10 fold, out performing sectors. Sector E and P, account for nearly 1/3rd of any other real-estate asset in Dubai. the en re supply
Emirates Hills plot prices have Similar blue-ribbon communi es, such as A granular analysis by sector of listed prices reveals out-performed any other real Beverley Hills, have had superior growth rates that Sector R has the highest price per square foot estate product by a factor of compared to the US average price Index by 50% rate followed by W and V. nearly 3x since the incep on of in the last 10 years. Freehold Whilst there is a rela ve premium for golf and lake A min-max analysis of transacted villa prices in frontage villas, individual nuances of each villa seem Emirates Hills reveals the the gap has doubled in to be the predominant weightage in determining the last 6 years. The widening of the gap is a the overall value of the price. func on of the large differences in the underlying proper es that have been constructed in this community over the years
Transac onal Analysis Emirates Hills and Dubai Hills 4/5th of the overall transac onal ac vity can be A comparison between Dubai Hills and Emirates a ributed towards cash buyers over the last 5 Hills plot prices reveals the la er trades at nearly years 1/3rd the price to the former.
The bulk of the transac ons However, as the market faces a liquidity crisis a We opine as the surrounding infrastructure of (upwards of 80%) have been on surge in ‘other transac ons’ have transpired. Dubai Hills begin to come online, plot prices will a cash basis in Emirates Hills Refinances account for a certain por on of these begin to accelerate, mimicking the trajectory of transac ons. Emirates Hills.
We opine as liquidity in the market has ghtened, This price accelera on will be further exuberated home-owners have refinanced their homes to by the upper strata that “missed the bus” on the mone ze the cash component of their villa. price and development trajectory of Emirates Hills, and this ‘me-too’ phenomena
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