Around 20% of Dubai’s prime properties stand empty
Around 20% of Dubaiís prime properties stand empty. Absentee homeowners have purchased them either as a holiday home or for wealth storage, writes Deepthi Nair
Taking a stroll down The Beach mall or The Walk in Jumeirah Beach Residence (JBR), it is common to look up and admire the skyscrapers stacked against each other, a la Manhattan. However, more often than not, a majority of towers seem dark, with no inhabitants in sight. Yes, this is a trend common across the world’s property hotspots such as Dubai, New York, London, Hong Kong, Paris and Singapore where affluent out-of-towners are buying up prime properties in urban centres.
According to a recent article in Newsweek, an American weekly news magazine, one in four apartments stand empty in the world’s top cities. Property experts in Dubai believe that around 15 to 20 per cent of the emirate’s units are not occupied as they have been purchased by foreign owners either for investment or as a holiday home.
“Dubai does host a vast number of absentee owners, just like many other similar cites in the world that attract high net worth individuals,” says Andrew Cleator, luxury sales director, LuxHabitat, adding: “There are no recorded statistics for absentee owners, but in my opinion, I would safely say currently in the region of 20 per cent of properties, of which buyers mainly come from Europe, Russia, the GCC and to a lessor degree the Indian sub continent.”
As Dubai chose to diversify its economy away from oil, real estate in the city was heavily promoted to investors around the world. “Remember that Dubai was promoted to different countries in the past as a property hotspot ripe for investment. As a result, many people bought into this and now own properties here while residing elsewhere,” says Mario Volpi, managing director, Ocean View Real Estate.
However, unlike Paris where a quarter of the city’s apartments are empty most or all of the time, the urban centre of Dubai is still well-occupied, say industry stakeholders. “We have observed healthy occupancy rates (nearly 85 per cent) for most buildings in Dubai. Absentee home owners look at the luxury segment preferably. They usually come from GCC states, India, Pakistan and Iran,” informs Robin Teh, country manager — UAE and director of valuations and advisory — Mena for Chesterton.
So, who are these ultra-rich absentee owners who rarely occupy their properties in Dubai? “They are mostly wealthy, dynamic individuals looking to acquire real estate assets here in Dubai now that it’s widely accepted that the city has established itself along side other luxury destinations, including the likes of Monaco, Miami, New York, Los Angeles, London, Paris, Singapore and Hong Kong,” says Cleator of LuxHabitat, a luxury real estate brokerage in Dubai.
A majority of these international home owners typically go for either luxury or beachfront properties in Dubai. Areas such as Downtown, Palm Jumeirah, Emirates Hills, JBR and Dubai Marina are popular choices. “It’s a mix really. Some buyers will buy to rent (Downtown or Dubai Marina), some buy as holiday homes (Palm Jumeirah) and some buy for the future (Emirates Living),” according to Gregory Lewis, senior negotiator, Knight Frank, a global estate agent and consulting firm.
However, Volpi clarifies: “In the past, the areas of Downtown, Dubai Marina and the Palm Jumeirah were the main focus, but this is now not specifically the case. These three areas are obviously still much sought-after, but buyers, especially investors, are looking for good returns and this can only be found from areas where the starting prices are lower.”
Why do properties stand vacant?
So, why do owners choose to keep their homes unoccupied? Property brokerages explain the rationale behind empty apartments.
“Admittedly, certain communities have a number of properties standing empty due to some cash-rich owners waiting to achieve a certain rent level or like in the past, capital appreciation outstrips income from expected rents. Also, the current rental laws make it easier to sell a property vacant, so again this adds to the number of empty properties,” explains Andrew Cleator of LuxHabitat.
According to Mario Volpi: “When a development is handed over, there is a rush to get a lot of units filled in terms of renting and the rest of the properties are slowly filled with owner occupiers moving in.”
Do absentee owners hurt businesses?
When out-of-towners buy prime properties in the heart of the city, it could lead to reduction in population density. So, would it affect retailers and local businesses or have security implications owing to reduced activity?
“No, in fact, the trend has positively impacted the retail sector by bringing in a niche segment of ultra-rich spenders to the emirate.” says Robin Teh of Chesterton Mena.
“With onsite building security and protected gated villa communities prevalent here in Dubai, it is sufficient to cope with most security issues posed. Local business and retail don’t seem to be affected to a worrying degree and with record number of tourists and visitors coming to Dubai each year, this certainly compensates in most areas,” adds Cleator.
Luxury home purchases by foreign buyers could drive up overall housing values. They may even outprice people who want to live in the city but cannot compete due to high prices for both owned and rented apartments.
“With less luxury properties available in the market, this causes such property prices to rise, although Dubai has a mandate already in place to increase the amount of affordable housing for low- to mid-level income buyers who cannot always afford the best quality in the best location,” says Cleator.
Despite having significant amounts of money at their disposal, absentee homeowners are price-sensitive, say Dubai-based real estate brokerages. However, they could be willing to pay higher than the market price for customised properties.
According to Teh: “There is always an endeavour to achieve market price for the property when the investment decision is made. If the market is reaching a peak, the investors might adopt a cautious approach and put off their investment decision for a short while.”
“Most buyers are aggressive to get the best possible price, especially in the current market conditions,” adds Knight Frank’s Lewis.
In some cases, however, they could be indifferent to exorbitant prices. “Some buyers could pay any price for luxury villas in areas like Emirates Hills and Palm Jumeirah — especially the case when ‘only the best will do’ for these individuals,” claims Cleator.
Safe haven status
With Dubai being perceived as a regional safe haven, it often attracts rich foreign clients who buy luxury apartments or mansions to make sure they retain wealth in case political change or social unrest forces them to flee their home countries.
“Dubai has always been know as a safe haven in the region for people who can afford to relocate here. The most recent regional unrest has been adding to these numbers but to a lessor degree this time compared to the Arab Spring period of 2011 to 2013,” reckons Cleator.
Volpi concurs: “It can now be difficult to take money out of these troubled countries to then invest here in Dubai.”
While investments in Dubai are usually a means for the uber-affluent to store wealth, they could also use it as a holiday home to soak up the sunshine. “Each investor could have their own motivations. However, most of them do visit the dwellings occasionally to get a break and indulge in lifestyle choices offered by Dubai,” explains Teh.
“The majority of these owners do tend to use their properties from time to time, either as holiday homes or at least allow friends and family to benefit from them. In addition, a number of wealthy investors do purchase Dubai property purely as a form of wealth storage but these types of investors are certainly limited in numbers these days,” adds Cleator.
While homeowners in other big cities are protesting against absentee ownership owing to security implications and reduction in population density in urban centres, there are no such peeves in Dubai.
“It’s impossible to discourage absentee owners with current property laws and the obvious draws to the city. With the fact that resident visa applications are possible with a property purchase in excess of Dh1 million, you could say it’s being promoted to a certain extent,” says Cleator.
“We encourage any and all owners, whether living here or not. The buyer can come from many sources but value for money is definitely the order of the present day,” Volpi concludes.
Makers of parts, some of which already being sold abroad, 'can beat... READ MORE
Businesses, individuals relying more on its wide reach and is... READ MORE
Partnership poised to address shortage in the number of quaternary... READ MORE
Saudi Arabia has an opportunity to drive technology-led productivity... READ MORE
India reported 261,500 new cases, taking the total caseload to nearly ... READ MORE
Residents have been advised not to make purchases while fasting. READ MORE
24K Dubai retail gold price forecast to rise above Dh220 per gram. READ MORE
The clarification of the penalty is part of UAE public... READ MORE