Developers cut unit size to make homes affordable in Dubai

As demand for affordable housing has grown year on year, developers in Dubai have resorted to reducing the size of the apartments, while prices continued to rise over the last few years.
Latest report by Property Finder disclosed that a reduction in size was recorded, not just for apartments, but in villas and townhouses as well.
Average size of an off-plan Dubai studio transacted in 2015 was 480sqft, but it was reduced to 406sqft in 2019. One-bedroom apartment sizes has been reduced from 845sqft to 670sqft. Similarly, two-bedroom off-plan apartment sizes were reduced from 1,300sqft to 980sqft, mainly to reduce the overall ticket price and to attract new budget-conscious customers.
In terms of prices, the property portal found that average price per square foot for an off-plan studio sold for Dh1,409 in 2015 had increased to Dh1,630 in 2019. Similarly, a one-bedroom off-plan unit that transacted for Dh1,161 per sqft in 2015 is being sold for Dh1,363 per sqft in 2019. The data comprised of 28,000 apartments transactions during 2015 to 2019.
Industry executives believe that this trend will not be welcome by end-users, but will appeal to investors because smaller apartments mean less service charges as well.
"It is imperative for investors to know what they are getting into when buying off-plan, especially with smaller units being the current trend. If their exit strategy is to sell once the unit is handed over, they might struggle to find a buyer in the secondary market which has been driven by end-users over the last year who have intrinsically become more savvy and have many options to choose from," said Lynnette Abad, director of research and data, Property Finder.
Some of the real estate areas which saw prominent reduction in sizes for off-plan projects are Business Bay, Meydan, MBR City, Dubai Hills Estate and Al Furjan, Property Finder said.
Dubai's residential property market is witnessing an oversupply over the last few years and with more supply coming online in 2019-20, investors will struggle to sell smaller units in the overcrowded market. It is estimated that around 41,000 homes are slated to enter the market in 2019 while 28,000 homes were handed over last year.
According to Cavendish Maxwell, over 6,141 apartments and 997 villas/townhouses were handed over in Dubai during Q1 2019. Actual materialisation rates in 2019 are expected to match previous years, with handovers averaging between 16,000 and 20,000 units this year.
In terms of villas and townhouses, Property Finder data revealed that the size of ready two-bedroom villas/townhouses reduced from an average 2,620sqft in 2016 to 2,046sqft in 2019. While the size of transacted ready three-bedroom villas has shrunk from 2,836sqft to 2,374sqft across three years.
Dounia Fadi, chief executive officer, MD Properties, also attributed the reduction in sizes to demand from the market, as investors prefer smaller units.
"If you are targeting investors, then they want small units because service charges are linked to the size of the units, but, end-users will like larger sizes. Developers are learning what the market needs and the shrinking of units has to do with service charges," she said.
Elaine Jones, executive chairman of Asteco Property Management, suggested that it is good time to buy completed properties as buyers can do their due diligence and check service charges as well while choosing the property.  "Off-plan property sizes have come down big time, that's why I believe it is good time to buy ready property when market value has come down. In 2005-06, we had speculators, people who were buying off-plans had dreams of values going up big time. But market is more mature now, so you can go and choose if you're happy with the project," Jones said.
She emphasised that prices are very competitive in the ready segment. Haider Ali Khan, chief executive of property portal Bayut, said consumers are looking for something that fits their budget and also meet their needs. "As more affordable housing is coming to the market with better payment plans, that is what going to be enabler for more transactions. Now, there are even once a month payment plan spread over five years. And if the cost is 900k, then it makes affordable for a lot more people. The industry has to offer projects that cater to majority of the market because the top segment will take care of itself," Khan said. - waheedabbas@khaleejtimes.com