They offer far better returns and trade at a premium compared to non-gated counterparts
Gated communities in Dubai offer far better returns for investors and trade at a premium compared to their non-gated counterparts, according to a recent report issued by Reidin-GCP.
Gated communities are favoured both by end-users and investors mainly because of safety, amenities, lifestyle, status, restricted access and resultant privacy, recreational clubhouses and community awareness.
“A tenant who does not wish to compromise on values important to family life such as safety, security and quality lifestyle living is prepared to pay a premium rental in return for peace of mind that gated community living brings. An owner/investor enjoys the pride of ownership and status recognition associated with holding a unit in a particular gated community while confident that the well-managed asset will increase in property value upon re-sale,” says Cheryl McAdam, head of residential valuations at ValuStrat.
Gated communities on a global level trade at a premium, which can be witnessed in countries such as the United States, England and South Africa. The premium can range from 12 per cent to 30 per cent in international markets, says the GCP report.
“A closer look in the city of Los Angeles, for instance, reveals that gated communities have superior capital gains relative to its non-gated counterparts. In Dubai, there is a 30 per cent premium for rentals [listed prices] in gated communities,” explains Hussain Alladin, head of research, GCP Group.
A rental comparison between contiguous communities in Dubai that are gated and non-gated reveals that the former trades at a premium. The premium is at the upper end of what has been observed globally.
According to ValuStrat, since 2013, villas in a gated community were eight per cent more expensive to rent than in non-gated developments. Also, there were nine times more transactions for gated villas when compared to overall villa transactions since 2010.
“Evidence indicates that there is a bigger pool of buyers/investors for freehold gated units than non-freehold developments bearing in mind the restrictions on ownership/disposal,” observes McAdam.
Developers are also catering to this demand among end-users and investors for gated communities. In the Dubai villa housing stock, 37 per cent of units are in gated freehold communities. A dissection of freehold areas further reveals that 86 per cent of villa communities are gated. The non-gated communities are predominately in leasehold areas such as Jumeirah, Al Wasl and Al Sufouh.
Some of the prominent up-and-coming freehold gated communities are Town Square by Nshama, clusters within Mohammed bin Rashid City, Sobha Hartland and projects in Dubai South.
Among the existing gated communities, ValuStrat says high-volume inspections and transactions are coming through in The Springs, Arabian Ranches, The Meadows and the Palm Jumeirah.
Freehold ownership is ranked as the most desirable form of ownership as it is not burdened with many restrictions and therefore has a bigger pool of buyers.
“One of the principal reasons why premia is greater for the freehold space is due to the wider investor base. Given the fact that the freehold base is expected to increase further, the premia being observed for master-planned and gated communities will partly be a result of the wider investor base that the freehold status accords,” Alladin points out.
Property owners in a freehold gated community also have the reassurance that a homeowners association will be appointed to control the maintenance of the grounds (common areas), amenities (swimming pool, gym, tennis courts), security staff and overall appearance of the community, retaining status and desirability.
“An investor is more likely to maintain security of tenure longer as the tenant is content with the added advantages of a gated community, and is less likely to re-locate. The landlord experiences less vacant units and resultant loss of rental income. There is another profile of investor who is more lured by higher rent returns and prepared to take a higher risk in investing in properties outside of a gated community which are not burdened with homeowner levies and common area maintenance,” adds McAdam.
ValuStrat has also noticed a large number of valuation requests for re-valuations of refurbished homes in gated communities. “Homeowners are confident that the capital outlay to refurbish or extend homes in these precincts translates into higher property values and a higher potential rental income should they elect to rent out at some point,” McAdam points out.
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