Is price per sq.ft. all that matters? – Confessions of a Real Estate Agent *Steven Leckie, Sales Director, November 2016Posted on: 1st November 2016
Back in the day when people were asking one question, “what will it be worth in 3 to 6 months?” before buying property and then selling shortly after, price per square foot (p.s.f.) was the main point of reference in the decision making process, that and premiums were all we ever talked about.
This was a time when 25% of the worlds cranes were working 24/7/365, people were pouring into the city, sales were brisk, profits were taken and everything was bigger, taller and brighter, the mantra was “build it and they will come”, price and value didn’t seem to be an issue.
Fast forward to the present, the market has cooled, flipping is no longer a tactic for the vast majority of buyers, investors have good rental yields and medium to long term hold as their main strategy whilst those buying for their own use are seeking lifestyle within communities and neighbourhoods that meet their social and economic needs.
If you were to ask someone in London how big their home is then they would probably respond by telling you how many bedrooms it has, here in Dubai you are likely to be given the type, the exact square footage and plot size and if you then asked how much they paid, the answer would be given as a price per square foot.
Bank valuations are based upon price per square foot, a good Real Estate Agent should be able to evaluate a property and give a p.s.f. value, construction companies work to this indicator, developers regularly provide the number in their availability lists and will often publicise a low figure as their USP.
It is a useful tool and a Dubai standard to assess value but is a low p.s.f. good enough reason to purchase a property?
If a property transacts at a lower price than the market, there’s usually a reason.
Why are two buildings within the same neighbourhood priced so differently, land costs and construction costs are similar so how can one developer sell at one price and another at a lower figure?
Value will depend upon the view, the quality of finish and the materials used, the design and features of the villa or apartment but then there are also the subjective aspects that should not be underestimated such as reputation and trust in the developer, constructor and architect that will always add and subtract substantial value.
What about Location Location Location? considered by many to be the most important element of property valuation. In each of Dubai’s communities or master developments there will be an average p.s.f. but this can’t be rigidly followed by buyers and sellers as we often see a very wide range in values on the same street.
A two-bedroom apartment in Dubai Marina that is built and managed by a developer with a reputation for delivering quality and design may sell for AED 2.4m whilst you can find a similar sized two-bedroom apartment in a neighbouring building from an unknown developer with a dark and uninviting reception, small pool and ill-equipped gym selling for AED 1.4m.
We regularly see this extreme variance reflected in the annual rents which can differ by as much as 100% from one neighbouring building to the next.
There are plenty of Tenants and buyers who are prepared to pay a premium for the best, their major prerequisite is value for money. It is often the cheapest properties that have the lowest capital growth, lower occupancy rates and low interest from buyers. These cheaper properties could have the highest rental yields but at what cost in a few years’ time when a poorly managed or built property needs an expensive refurbishment that will not make economic sense due to its low valuation.
There are similar examples all across Dubai so we need to look beyond price per sq.ft. and work on features, build quality, the materials used, inviting reception areas, great pools and gyms and well-designed living spaces etc. etc.
Once again this highlights the need for buyers to engage an experienced agent who regularly looks at the bigger picture, knows what is available, understands the market and who may very well discuss price per sq.ft. but will also be able to explain the reasons, the facts and the features and most importantly why the property will provide good all round value in return for their investment.
*Steven Leckie is a Dubai property specialist, supporting investors to find and purchase off-plan properties in Dubai. As a professional real estate agent from the UK who has been active in the Dubai property market since 2003, he has seen both the good and the bad times. His clients choose to work with him because they trust in his knowledge, integrity, experience, and commitment to providing a great service.
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