A step closer to understanding the residential market

Prepared by AA Valuation - Market Research Division September 11, 2019 Who We Are

Based in Dubai, we operate under the umbrella of AA Real Estate Valuation Services, AA Real Estate Development and AA Real Estate Brokers. We assist client from diverse geographical backgrounds, including illustrious names from Fortune500 & Forbes’ lists, with all property enquires. Our range of comprehensive real estate solutions include premium class advisory, high-end luxury real estate development , property brokerage, research, and valuation services aim to deliver client unique experience. Crown jewel of our achievement is “The Ocean Breeze villas” located in Palm , developed by AA Real Estate Development, it is Syed Salman Ahmed one of its kind in Dubai. CEO AA Valuation AA Real Estate Valuation Services

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Welcome to our point of view Using data to help develop a better understanding of the Dubai residential real estate market. Key elements of this report are Villa and Apartment price per square feet (SQF) and its relationship with supply. We believe historical data is the key to understanding and interpreting what is instore for the future. Relationship of Villa and Apartment with different factors is key in extracting market insights to help investors in decision making.

Historical data is the key to understanding Syed Fahad Ehsan Market Research Head and interpreting what is instore for the AA Valuation future Contents

1. Overview of Dubai residential real estate

2. Relationship of apartment & villa

3. Drivers of Dubai residential market

• Relationship of supply with sale price

4. Dubai residential market – Where to invest? 1. Overview of Dubai residential real estate Brief overview of Dubai Residential Real Estate History

• End of Q3’08 saw the economic crisis hit Dubai real estate • Yemen and Syrian conflict Q1’11 • Q2’16 Dubai Financial Market market. As the demand for real estate dropped among the • EIBOR drops further as the liquidity situation launched a large block trade service • Cost of borrowing increases (EBIOR) continues affluent target market in the UAE market improves in Q1’11 “Direct Deals Service”. to increase as Fed raises rates throughout 2017 • As the market deals with the economic crisis, gold • UAE government initiative in Q2’11 of • The price of gold has been on the and 2018. considered a safe haven for investment regains extending the three-year visas to owners of rise since start of 2016, gold is • Oil prices rebound after OPEC agreed in momentum by the end of 2018. With gold prices scaling properties worth AED1M or more is seen as considered a safe investment, November 2016 to reduce supply in Q1’17. new heights every quarter, demand remains strong very positive impact on the market. owing to low economic growth, • Emaar Properties, announced at the end of throughout the period. • Q3’11 sees a number of positive news from and drops in Q4’16 as the demand Q2’17 to float up to 30 per cent of its real estate • To better reflect market conditions UAE central bank banking industry which stimulates the from key Asians is week. business on the DFM in 2017. announced establishing an official interbank rate for market. • Q4’16 Central Bank UAE proposes • The gold prices rise throughout 2017.The rise is dirham in Q3’09.. • Dubai’s largest bank and a major finance reforms to determine interbank mainly due to uncertainties in the Eurozone • Dubai Financial Market (DFM) made an offer to Acquire house may offer mortgages on completed offered rates between banks in the • Emaar shareholders approve listing of real NASDAQ Dubai for US$ 121 Million at the end of Q4’09. houses to lure overseas buyers back into UAE. estate arm on Dubai’s DFM at the start of Q4’17 • EIBOR falls post Dubai World debt deal in Q2’10 the market. • Middle East saw the start of Arab Spring in Tunisia and • HSBC eased restrictions by cutting interest Egypt at end of Q4’10. rates, lowered the payment requirements and increased the amount of money it was prepared to lend house buyers aiming to secure a loan in Dubai. • HSBC also lowered its monthly salary requirement for borrowers by 25 percent to AED15,000. • Q3’11, market reacts to concern over Eurozone debt crisis and economic health of US, as gold prices touched an all-time high 1,600 average 201.44 per gram in Q3’11. 1,500 • Q4’11, one of Dubai’s biggest real estate 1,400 developer sees niche for low-cost housing property for someone with an income level

AED per per AED SQF 1,300 of around AED12,000 a month. 1,200 • Q2’13, gold bubble burst as market registers biggest gold price fall in 30 years. 1,100 1,000 900 800 700 600 500 400 300 200 100 Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: REIDIN Dubai Apartment AED SQF Dubai Villa AED SQF Q1 & Q2 2. Relationship of apartment & villa Understanding apartment and villa – per square feet pricing

As one would expect apartment sales and rental and villa sales and rental have a strong relationship (based on the data seen below).

1,600 120 1,600 80 1,400 1,400 70 100 1,200 1,200 60 80 1,000 1,000 50 800 60 800 40 600 600 30 40 400 400 20 20 200 200 10 0 0 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Dubai Apartment AED SQF Apartment Rental Dubai Villa AED SQF Villa Rental

Source: REIDIN Interestingly both apartment and villas sales price (SQF) follow a very similar pattern. Based on analysis, both have a very strong correlation with each other, indicating that if one increases the other should follow. Our analysis also confirmed that “Sale Price of Villa” is an important driving factor for “Sale Price of Apartment” and vice versa.

Even though these two factors have some similarities with each other, both “Sale price of Apartment and “Sale price of Villa” have distinct major drivers that came out from our model and a few common factors. Main reason for having different driving factors is return on investment. Apartment is considered a shorth term investment as majority of the drivers have short-term return (less than a year), while villa on the other hand being a bigger investment and a lot more at stake is driven by factors that have long-term return (more than a year). 3. Drivers of Dubai residential market – Supply AA Valuations Data Model – Supply as driver of Dubai residential market

After reviewing the brief history of Dubai Residential Real Estate, one clearly understands there are many factors that affect sale price of residential apartment and villas in Dubai. However it is critical to understand the most important factors that drive price (price per square feet) and in the process clarify notions held by experts that cannot be backed by data. For detailed understanding of the important factors please contact AA Valuation team.

Oil Prices Population Growth Supply of residential units Mortgage rate/Interest rate

UAE GDP Political News Jobs Creation Relationship of supply with sale price

All the experts, articles and industry reports mentioned supply having key role in driving prices (per SQF). This notion also makes sense to one’s logical thinking i.e. If there is more supply of apartments and villas in market, then prices should reduce, if demand remains constant. However Dubai supply’s relationship with price is not as easy. There are two elements to understand supply: 1. Supply - Property Launch date: The announcement by property developer to launch the number of units in market. 2. Supply - Property Ready to move in (actual supply): The announcement by the property developer that the units are ready to live in by customers. Both have a unique relationship with price in the Dubai residential market. “Supply - Property launch date” relationship with Price

“Supply - Property Launch date” has a positive and medium to strong relationship with “Sales of Apartment and Villas”, based on the date and outcome of our model, i.e. the more there launches the higher would be the sale price (per SQF). This relationship can be described as market reaction to new property launches. New Launches create market hype backed by huge advertising spends. This leads to investors, developers and buyers speculating on the positive atmosphere in real estate market and in turn leads to price increase(seen in 2003 – start of 2008 and 2013 -2014) or doesn’t let the price fall (as seen in 2016 -2017), as it boosts confidence in the market.

1,500 60,000

1,400 55,000 Units 1,300 50,000 AED per per AED SQF 1,200 1,100 45,000 1,000 40,000 900 35,000 800 30,000 700 600 25,000 500 20,000 400 15,000 300 10,000 200 100 5,000 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 & Q2 Dubai Apartment AED SQF Dubai Villa AED SQF Launch of Apartments Launch of Villas

Source: REIDIN “Supply - ready to move in (actual supply)” relationship with Price

On the other hand “Supply No. of units ready to move in” has very weak relationship with sale price (per SQF), based on the data and outcome of our model. The chart below shows how price of Apartment and Villa changes with supply (No. of units available in market to move in). One might point out bumper supply of 61,887 units in Q1’2008, however prices only started falling in Q3 and not in Q2. In the aftermath of 2008 economic crisis new supply kept on entering the market with 23,240 apartments and 2,162 villas units in 2009, 26,869 apartments and 3,614 villas units in 2010, while prices continue to fall. However in 2011, 19,759 apartments and 235 villas units and in 2012, 16,920 apartments and 5,860 villas entered the market, though the prices continue going up.

1,500 65,000

1,400 60,000 Units 1,300

55,000 AED per per AED SQF 1,200 50,000 1,100 45,000 1,000 900 40,000 800 35,000 Supply 2009 2010 2011 2012

700 Apartment 23,240 26,869 19,759 16,920 30,000 600 Villa 2,162 3,614 235 5,860 25,000 500 20,000 400 15,000 300 10,000 200 100 5,000 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 & Q2 Dubai Apartment AED SQF Dubai Villa AED SQF Supply of Apartments Supply of Villas Source: REIDIN Supply (ready to move in) & Demand - Relationship

To understand the relationship of supply (actual) with sale price(per SQF). It is important is see how growth in supply changes with growth in demand and the affects it should have on price. In terms of demand we have assumed population growth as factor for growth in demand.

Demand Population

4 +9% +8% +5% Million 3 +7% +10% 2

Dubai Population Dubai 1

0 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 2019 Source: Dubai Statics Supply (actual)

-34% Supply of Apartments & Villa 80,000 +83% 70,235 +32% Units 60,000 +1% -12% 40,000 30,483 26,973 27,288 22,581 25,402 19,994 22,780 20,522 20,000 12,727 9,979 12,454 15,762 3,438 623 4,064 0 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: REIDIN

Relationship of Demand & Supply Price Price Price Price Price Supply CAGR: +83% Supply CAGR: -34% Supply CAGR: +1% Supply CAGR: -12% Supply CAGR: +32% Demand CAGR: +10% Demand CAGR: +7% Demand CAGR: +5% Demand CAGR: +8% Demand CAGR: +9%

S1 S0 S0 S0 S0 S1 S1 S1 P1 P1 S1 S0 P1 P0 P0 P0 P1 D1 0 P D1 0 D1 P1 P D1 D1 D D D0 0 D0 0 D0 Q Q Q Q Q Q0 Q1 Q1 Q0 Q0 Q1 Q1 Q0 Q0 Q1

The Impact of Demand & Supply on Dubai Residential Market 1,500 As Supply decreases and Given the changes in supply The changes in Supply and Demand Given Supply only increases by The changes in Supply and Demand should result in Price Demand increases. Price and demand. Price decreases should result in Price increase, 1% and demand increase by 5%, decrease, however Price increases in the market should have increased; in the market is as expected. however Price decreases in the resultant Price increase in market

AED per SQF per AED however it decreases in the 1,000 market is as expected. market. Dubai Apartment AED SQF Dubai Villa AED SQF 500 The weak relationship of Demand and Supply signifies that there are other important factors driving price ! 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: REIDIN 4. Dubai residential market – Where to invest? Identifying areas to invest

An investor usually purchases a property for three main reasons • Re-selling the property • Renting the property • Move in him/herself As we have already established rental has a strong relationship with sales, therefore buying a property in an area which has 1. relatively steady market sale price (less affected by market conditions) 2. registered increase in value over couple of years and is expected to increase in further Is the key to wise investment both for re-selling and renting the apartment. Identifying apartments to invest– based on sale price

• While majority of the areas across Dubai have registered a drop in sale price(SQF) over the recent years since 2014. • Be on the look out for are (MBR) and Meydan City which have recovered after a slight decrease in last two years. • Interesting Jabel Ali is one of the few properties that is least affected by the market conditions in 2014 and 2015 as it remains relatively stable in the recent years. The property performs better than other areas as prices have significantly increased since inception in 2011. • Jumeriah Village Circle(JVC) has also performed well, as prices been relatively steady(slight changes) in the recent years.

2,500

2,400

2,300

2,200

2,100

2,000

1,900

1,800

1,700

1,600

1,500 1,385 1,400 1,365 1,338 1,318 MBR 1,300 1,254 1,231 1,217 1,229 1,200 Meydan City

Dubai Average 1,100 1,034 1,008 1,023 1,020 1,003 961 1,000 Jabel Ali 921 910 Town Dubai Land Arjan 900 960 885 907 Jumeirah Village Circle 880 Motor City 800 Green Community DIP 717718 Dubai Sport City 700 Dubai Silicon Oasis 630 600 547 Dubai Land Residence Complex 502 500 529 Dubai International City 400 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (Q1 Q2) Note: “Dubai Average” is an indicator to identify areas being sold above and below market price in Dubai - Apartments Area ranking is based average price over the year, based on REIDIN Trends data Dubai Jumeirah consists of Nikki Beach Residences By Meraas, Pearl Jumeirah, Meraas La Mer, Port de La Mer, Wasl Square (The Jewel of Jumeirah), Port de La Mer - La Rive and Port de La Mer - Le Pont

Source: REIDIN Identifying Villas to invest– based on sale price

• Similar to apartments majority of the areas across Dubai have registered a drop-in sale price(SQF) over the recent years since 2014. • Interesting Mudon is one of the few properties, least affected by the market conditions as prices have remained stable since inception in 2014. • Akoya Oxygen has also performed well, as prices have been relatively stable (slight changes) in the recent years.

2,600

2,500

2,400

2,300 2,200

2,100

2,000

1,900

1,800 Jumeirah Island 1,700

1,600

1,500

1,400

1,300

1,200 The Lakes MBR Dubai Science Park 1,100 DAMAC Hills Dubai Average Jumeirah Golf Estate Victory Heights 1,000 Dubai Spot City 865 883 875 The Spring & Meadows 900 857 Sustainable City 855 Mudon 827 800 Legends The Villa 700 Jumeirah Village Circle 638 635 Akoya Oxygen 600 655 Green Community 623 500

400

300

200 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Note: “Dubai Average” is an indicator to identify areas being sold above and below market price in Dubai - Villa (Q1 Q2) Area ranking is based average price over the year, based on REIDIN Trends data Dubai Jumeirah consists of Nikki Beach Residences By Meraas, Meraas La Mer, and Wasl 51 Source: REIDIN Methodology

Secondary data regarding the Dubai apartment and villa market has been mainly used to compile this report, collected from articles, government websites and other reliable sources (i.e. REIDIN) • Demand is assumed to be represented by Dubai population • Actual Supply is represented by the - Property ready to move in Rental and Sales trend is taken from REIDIN.

Contact details

Syed Salman Ahmed Syed Fahad Ehsan Address: CEO Market Research Head Office 3408, 34th Floor, Mobile +971 55 193 1733 Mobile +971 56 787 5817 Concord Tower, Media City Email: [email protected] Email: [email protected] Landline: +971 4 243 8777 Email: [email protected]

DISCLAIMER:

The information contained in this report has been obtained from and is based upon sources that AA Valuation believes to be reliable; however, no warranty or representation, expressed or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. AA Valuation will not be held responsible for any third-party contributions. All opinions and estimates included in this report constitute AA Valuation Management’s judgement, as of the date of this report and are subject to change without notice. Figures contained in this report are derived from a basket of locations highlighted in this report and therefore represent a snapshot of the UAE market. Averages, however, represent a wider range of areas. Particularly exclusive or unique projects have been excluded from the data to avoid distorting averages. Due care and attention has been used in the preparation of forecast information. However, actual results may vary from forecasts and any variations may be materially positive or negative. Forecasts, by their very nature, involve risk and uncertainty because they relate to future events and circumstances which are beyond AA Real Estate Valuation Services Management’s control. For a full in-depth study of the market, please contact AA Valuation Research team. AA Real Estate Valuation Services LLC. Commercial License No. 802893.