The word “real property” which refers to both land and any permanent improvements made thereon, serves as the definition of the real estate asset class. Water and trees are examples of both natural and man-made enhancements (buildings, homes, and fences).
In Dubai, the market has seen a lot of changes. New digital investment platforms, trade licenses, work permits, changes to visa and citizenship regulations, and a new urban master plan. If you’re considering investing in Dubai’s real estate market, you need to pick your real estate asset class carefully. It doesn’t necessarily have to be home, the investment of choice for first-time buyers. Instead, make your choice in accordance with your unique buy, hold, and sell strategy.
Although you may hear the phrase “real estate asset classes,” it is not a precise representation of real estate types. Although it is an asset class, real estate is not further divided into other asset classes. Instead, various types of real estate are divided into property classes, which should not be confused with asset classes.
We have created a brief overview of Dubai’s real estate performance across its three main asset classes to help you out.
Residential property is just real estate intended for living. It consists of condominiums, co-ops, single-family homes, multifamily properties like apartments, villas, townhouses, and vacation residences. When rented out, residential property is regarded as an investment property since it generates cash flows from monthly rent while also accumulating equity as the value of the home increases.
Residential Property as an Asset Class
Any sincere discussion of Dubai’s real estate market, and notably of its residential sector, for a number of years, now has included the topic of oversupply. It is said that this glut caused a price decline in the market. However, 2020 got off to a bright start with the Expo just around the corner before the epidemic struck.
However, by the third quarter of 2020, demand had returned and the volume of transactions began to increase. So much so, that the annual reduction in residential real estate sales was only 14%. Apartment sales prices declined more than villa sales prices, which only slightly decreased. Experts anticipate minor price and rent drops in 2021, but otherwise solid demand; as expected, decreased prices have made Dubai’s residential market a buyer’s market. By 2023, the overstock of multifamily properties is anticipated to decrease.
One of the most common types of real estate investments is commercial real estate. Any property intended especially to provide income is considered commercial real estate. You can find a variety of commercial properties, including:
It could be a single, non-residential property for one tenant, an office complex with several tenants, or even a skyscraper.
Office as an Asset Class
Work-from-home, remote working, and staggered return to work regulations had a significant negative impact on the commercial real estate industry. The landlords did their best; they adjusted their asking prices, gave existing tenants discounts, and provided new tenants incentives. However, there won’t be much further demand in the office sector in the immediate future because many businesses haven’t yet started operating at their pre-pandemic levels. There is also an oversupply.
Hotels & Hospitality
Hotels have a special opportunity due to the flexibility of room pricing in response to demand. Keep in mind that the economy, particularly during recessions, can have a significant impact on the hotel business, lowering your return on investment.
Hotels as an Asset Class
In contrast to other significant tourist destinations in the area, Dubai’s hotel industry had reasonable resilience in 2020. And by year’s end, hotel occupancy rates started to rise again, fluctuating between 50% and 70%.
These might be freestanding businesses like a gas stations or restaurants, or they might be bigger and freestanding like a strip mall.
This kind of property rents out space to renters on a long-term or month-to-month basis, ranging from containers and lockers to rooms or even outdoor spaces suitable for boats or RVs.
Brownfield and greenfield are the two basic types of land properties. Both can include unoccupied land, which is a piece of property devoid of any permanent structures or machinery. Vacant property can be developed into commercial or residential real estate, or it can be used for ranches, farms, or natural resources like water, minerals, or air rights. The two most typical categories of land property are defined as follows:
Land that has already been built and needs to be cleaned up before it can be used again is known as a brownfield. Even if the site is abandoned, there are certain guidelines for looking into vacant land that once housed structures.
Greenfield refers to land that has not yet been used or developed. It is frequently used for agricultural reasons and is thought to be the easiest to cultivate.
How do property classes work?
There are three different classifications for property classes: Class A, B, or C. These categories were developed by real estate professionals to facilitate speedy evaluation and communication of a property’s quality.
The determination of letter grades is based on a number of variables, including the age and location of the property, the tenants’ income levels, amenities, appreciation, rental income, and more.
Class A properties are typically thought of as the best-located, highest-quality structures in their local housing market. They are often brand newer, have the best amenities, and are well run.
Their buildings often have lower vacancy rates and their occupants tend to have high incomes, although they charge greater rent. They frequently require less upkeep as well.
The level of Class B properties is lower than Class A. They might be a little older, their tenants might make less money, and the buildings might not always be managed by professionals. While rental income is down, maintenance problems could get worse.
These buildings are often thought to be well-maintained and provide investors a value-added investment opportunity since, with modifications and renovations in the common areas, they might be upgraded to a higher property class.
Class C properties typically date back more than 20 years and aren’t situated in prime locations. They frequently need updating through renovations. As a result, these structures have less expensive rental rates than Class B and Class A properties on the market.
The best approach to manage and invest in your real estate portfolio is through Next Level Real Estate. We collaborate with you to find, buy, rent out, and manage residential properties according to Dubai real estate asset class, so you may benefit from a better rental income with far less stress.