The primary reason that investors analyze the Property Appreciation Rate (PAR) in Dubai is because of supply and demand. However, there are three other key factors that affect PAR in Dubai and transform the market at its base: infrastructure. The roadways, metro extensions, airports, schools, and commercial hubs in Dubai can drastically change which neighborhoods will grow and which will remain stable.
Property Appreciation Rate in Dubai: How Infrastructure Projects Influence Growth
Infrastructure in Dubai affects property appreciation rate in Dubai by changing how people perceive a neighborhood, how much foot traffic passes through a neighborhood, the level of connectivity in a neighborhood, and therefore the amount of capital growth that occurs in a neighborhood. Urban growth in Dubai has historically been rapid. New infrastructure in Dubai has historically been the trigger that turns emerging neighborhoods into high performing investment neighborhoods.
Increased Accessibility and Connectivity Creates Immediate Value
Generally speaking, increased connectivity is the first measurable impact of infrastructure on property appreciation rate in Dubai. Increased connectivity, whether via metro expansions, new highways, etc., will decrease commute times in a neighborhood. Decreasing commute times will cause a dramatic increase in the number of potential homebuyers and renters interested in the properties in a neighborhood.
Metro Extensions and Increasing Demand for Residences
For instance, homes located near metro stations will likely have stronger resale values than homes of equal quality located farther from a metro station. People want to buy homes that are convenient. People want to rent homes that are convenient. Lower commuting times to business districts such as Downtown Dubai and Business Bay will increase rental demand, and subsequently increase prices over time.
New Roadways Create New Opportunities in Neighborhoods
In addition to transportation infrastructure, roadway systems can also positively affect property appreciation rate in Dubai. Improved access routes to emerging communities such as Dubai South and Dubailand can make those neighborhoods appear more viable to families and professionals. Once a community appears more viable to families and professionals, it is easier for developers to build new housing stock, and for existing homeowners to sell their homes at higher prices.
Commercial Development Creates Employment Clusters
Infrastructure in Dubai is not just limited to transportation. Commercial development, including free zones and business districts, can greatly influence property appreciation rate in Dubai by providing employment opportunities.
When companies choose to locate their headquarters in a particular area, residential demand for that area will follow. Employed individuals will be attracted to the area because of proximity to their workplace. Retail and lifestyle amenities will begin to develop to service the growing resident population. This provides a self-reinforcing growth cycle.
Expansion of Business Districts Supports Growth in Nearby Residences
For instance, the expansion of Dubai Internet City and Dubai Media City supported growth in the residential properties in the surrounding communities. Prior to this, the apartment complexes were serving a niche market. After the expansions of the business districts, the apartment complexes began to attract long term renters and investors looking for predictable income. As commercial activity grows, so too will the value of residential properties.
Infrastructure Supporting Daily Life Increases Long Term Attractiveness
Family friendly communities are often evaluated differently than those evaluated by short term investors. Schools, universities, hospitals, and community centers all contribute to the decision of a parent to relocate to a neighborhood.
International Schools Signal Long Term Livability
The opening of international schools in suburbs is a signal that a community is going to be attractive to parents for years to come. Parents will then be willing to relocate to the community, and will drive up demand for villas and larger apartments. Sustained family occupation of properties will stabilize property values and reduce volatility.
Healthcare Facilities Support Quality of Life and Increase Attractiveness
Access to healthcare services will also strengthen the attractiveness of a community to families. When residents have access to modern hospitals and clinics, they are more likely to find a community to be attractive. Historically, the provision of infrastructure to support daily living has created long term sustainable growth as opposed to speculative growth.
Market Psychology Influenced by Mega Projects
Mega projects in Dubai will influence market psychology even before the project is complete. Announcements of new infrastructure projects will stimulate early buying activity in the surrounding areas.
Speculation Drives Early Interest
Transportation related mega projects and mixed use mega projects tend to create speculation in the surrounding neighborhoods. Early investors will speculate on the growth of the area in anticipation of the completion of the project. Not all announcements result in price appreciation prior to completion, however historical evidence indicates that completed infrastructure in Dubai has contributed to long term appreciation of adjacent properties.
Infrastructure Improves Perception of an Area
Confidence created by infrastructure development will encourage investment. Investment will increase transactions. Transactions will support higher price levels.
Infrastructure Will Support Higher Rental Yields
Property appreciation rate in Dubai does not exist independently from rental yields. Strong rental demand will support higher capital growth. Infrastructure will support both rental demand and capital growth.
Rental Demand is a Multiplier of Capital Growth
Improved transportation links will increase tenant interest. Increased commercial development will increase job availability. Improved retail development will improve the lifestyle appeal of an area. All of these elements will improve occupancy rates and rental pricing power.
An Investor Can Benefit Twice From Investing Near Planned Infrastructure
First, rental yields will increase as demand for rentals increases. Second, resale value will increase as the area matures. The dual benefits of investing near planned infrastructure explain why announcements of infrastructure projects receive interest from both end users and institutional investors.
Timing Is Everything
While infrastructure tends to support long term growth, timing is everything. If an investor buys too early in an area that has little development occurring, the investor may need to wait for a while to see any type of appreciation. Construction timelines can take longer than expected and appreciation will not occur overnight.
Due Diligence Must Be Conducted On Funding and Completion Timelines
Savvy investors will conduct due diligence on the project funding, completion timeline, and government commitment to the project prior to making a decision. Dubai’s history of successfully completing major infrastructure projects has created a great deal of investor confidence in the region; however, conducting due diligence is crucial to managing risk.
Identifying When a Project Transitions from Proposal to Underway
Successful investors will identify when a project transitions from being a proposal to being under way. Identifying when a project transitions from a proposal to underway will help separate speculative risk from calculated opportunity. Investors who time the purchase of properties with the completion of projects tend to better manage risk.
Using Professionals to Guide Decision Making Regarding Infrastructure Based Investments
Infrastructure investment is about more than just “following the headlines” and the buzz of what’s going on in the marketplace; to invest in this space you need both on-the-ground experience, and an analytical process that can evaluate which trends are likely to be sustainable. Keyspace Realty and Keyspace Dubaiprovide our clients with research-based strategies and expert knowledge to measure the impact of expanded infrastructure on property appreciation rates within Dubai. We do this through a review of major transportation development, commercial growth and emerging business districts as well as large scale community development. We then analyze actual construction activity and long term planning initiatives versus speculative trends to enable our clients to identify real growth corridors driven by tangible infrastructure activity, and thus position their portfolios for future appreciation in value in areas with high sustainable growth potential.
A Long Term Focus Provides the Greatest Opportunity
Urban growth and development in Dubai are constantly evolving through the creation of new and ambitious urban planning and development strategies. The constant creation of new infrastructure and the continued growth of the economy will continue to reshape demand patterns throughout the city.
Investors who track the development of infrastructure will have a forward looking perspective. Instead of responding to price increases, they will position themselves ahead of price increases. Consistent investment in infrastructure will continue to attract global investors to Dubai and reinforce the economic growth of the country.
Historical evidence shows that infrastructure does not guarantee immediate profits. However, it consistently provides the building blocks for long term measured and sustainable appreciation. For investors who are committed to long term capital growth, tracking the development of infrastructure will continue to be one of the most reliable indicators of where future value may increase.
Frequently Asked Questions
How does infrastructure influence the appreciation of property values in Dubai?
The construction of new infrastructure (such as transportation systems) improves access to Dubai, attracts businesses, and increases lifestyle amenities within Dubai. The increased access, business attractiveness, and increase in lifestyle amenities all tend to increase demand for properties in a given location which in turn tends to support greater property values for that location over time.
Does the announcement of major infrastructure developments cause property prices to immediately increase?
No. Although announcements of large-scale infrastructure projects may generate speculative activity in the immediate area, it is generally true that prices of property in an area are not likely to experience significant appreciation until the infrastructure is completed and operational.
Is investing in areas with new or upgraded metro stations a good investment strategy?
Yes. Properties located close to metro stations have historically attracted strong rental demand and resale interest as they provide residents greater access to employment centers, shopping centers, and entertainment options in general. Therefore, investing in an area with a new or upgraded metro station can be a good investment opportunity. Nevertheless, investors need to take into consideration other factors such as the current price of the property; competition from other similar properties in the area; and community growth when evaluating their investments.
Will Infrastructure Reduce Investment Risk?
Infrastructure can provide some comfort to investors regarding long term stability by increasing demand and livability in an area. However, investors should always evaluate the project timelines, funding certainty, and market conditions prior to making an investment.
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