Developers are also using this strategy to attract end-users to consider purchasing properties that are coming in at a certain price point.
A new trend is becoming evident in the Dubai property market. Investors are placing more emphasis on the entry price of properties as opposed to the price per square foot. For instance, units that were previously advertised below Dh1,000 per sqft are being promoted as below Dh500,000 for studios or Dh1 million for one-beds to encourage takeup.
"Yes, the entry price is becoming important for investors as a key psychological factor in a market increasingly driven by price and competing marketing announcements from a few developers engaged in a race to bottom. Price per square foot is becoming relatively less important because it requires deeper market understanding. Sadly, this is encouraging more of the lower quality stock to be built and marketed at very low price points, where the size and quality are sometimes compromised to achieve that low entry point," says David Godchaux, CEO of Core Savills, a consultancy.
Developers are also using this strategy to attract end-users to consider purchasing properties that are coming in at a certain price point.
"There is a huge demand from the end-user for affordable housing, whether it is already complete or still under construction. By advertising at under Dh500,000 or Dh1 million, it is appealing to the end-user to show what you can get for under a certain milestone in price," remarks Lewis Allsopp, CEO of Allsopp & Allsopp.
Some developers use this strategy to hide the fact that their units are relatively smaller in size or that they have a very limited number of units available at that price point.
"Quoting a total price rather than price per square foot is a mere marketing strategy targeting first-time home buyers with one figure, giving a clearer picture on affordability without the need to have to calculate the size multiplied by price per square foot. Savvy investors, however, look beyond the total price or price per square foot. They look for great locations, reasonable unit size, practical layouts, decent quality, fair payment plans, affordable down payments, easy mortgage payments, well-connected infrastructure, good amenities/facilities, the developer's track record, and, of course, the potential total returns on the investment," informs Haider Tuaima, head of real estate research at ValuStrat.
This marketing strategy is mostly being used for smaller ticket sizes and targeted at first-time home buyers who were previously unable to afford a property in Dubai due to higher prices per unit. When it comes to mid to upscale properties, investors are still driven by the price per sqft, insist market observers.
"The main reason is that the investor is looking at the final price as his tenant is going to pay him as per 1-bedroom, 2-bedroom, etc., in a specific location. There is no incentive for the buyer to buy a big unit and pay more but get a similar rent. This trend has advanced since 2012, when the market started moving towards more compact units with smart floor plans from some key developers, which allow the unit to be efficient with minimum space lost in corridors and other wasted areas," observes Sanjay Chimnani, managing director, Raine & Horne Dubai.
Short-term investors are also attracted to the entry price point rather than the cost per sqft. Such marketing strategies are also mostly offered in outer areas.
"Short-term investors are drawn to the outer areas, and yields combined with entry price points are the key factors considered. Indeed, there may be a few good deals to be made, but today's high return is not always a good indicator of tomorrow's yields - on the back of the very important supply expected to be handed over in the next 3 years at low price points. In outer areas, this short-term strategy may result in a few disappointed buyers, finding themselves locked between falling rents and decreasing capital values, making their investment illiquid in the mid term," warns Godchaux.
Meanwhile, long-term investors are more careful, selecting developers with a strong reputation and track record, especially when buying off-plan. Location is also one of the most important factors for these investors, as long-term capital value is more likely to be retained in central areas.
"Investors are intelligent and savvy people. They are not going to purchase something at a low yield or something with little chance of capital appreciation or something with a questionable exit strategy just because it is advertised at being under a certain price point," explains Allsopp.
Discerning investors in Dubai consider location, occupancy in the area, price, size, net yields and payment plans before making a purchase.
"Investors are becoming more conscious of the full life-cycle of their investment [rather than just counting on the short-term capital appreciation followed by the exit]. Hence, they are more interested in the quality of construction, amenities, connectivity, service charges, rental potential and exit options," says Ivana Gazivoda Vucinic, head of consulting and valuations and advisory operations, Chestertons Mena.
Meanwhile, sellers are adapting to the new market reality. "This is evident through the constant downward correction in prices to meet the current demand and investors' price sensitivity," adds Vucinic.
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