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Branded residences: Investment goldmine or oversupply risk?

Experts recommend considering Dubai’s branded residences market as it consistently outperforms global trends, offering competitive pricing and attractive rental yields

Branded residences: Investment goldmine or oversupply risk?

Dubai stands as a prominent player in the branded residences industry, boasting the highest number of branded developments globally. The sector is forecasted to experience significant growth, more than doubling in size over the next five years, with 70 projects currently in the pipeline. In fact, Dubai has surpassed established leaders in the market, including South Florida, New York, London, and Paris, stamping its unique authority. 

“The prices for branded residences in Dubai are comparatively more attractive than those in other prominent cities, where top-tier properties can exceed $5,445 (AED 20,000) per square feet. In Dubai, premium residences such as Four Seasons in Jumeirah are priced at approximately $2,178-2,450 (AED 8,000-9,000) per square feet. For example, the most recent resale in Mr C by Cipriani was listed at $2,635 (AED 9,678) per square feet, which is still significantly lower than the prices of branded international properties. Off-plan branded developments like Baccarat Residences, Four Seasons DIFC, and Ritz Carlton Residences are also available for purchase at just ($1,347-1,885) AED 5,000-7,000 per square feet,” explains Michelle Liddiard, Associate Director at Dubai Sotheby’s International Realty.

Demand drivers for the segment

Investors are particularly attracted to branded residences because of the prestige and confidence that come with luxury brands. These properties boast top-notch construction and design, ideal locations, excellent amenities, and superior rental returns, making them very appealing investment opportunities. The sense of security and stability offered by branded residences also serves as a key motivator for investors. Besides, during uncertain times, branded residences maintain their value thanks to the enduring reputation and quality of the associated brand, leading to strong resale value.

“Branded residences provide investors with the flexibility to use their property for short stays while also offering the potential to earn rental income, making it a multifaceted investment opportunity. By capitalising on the reputation of the brand, these properties not only attract tenants but also maintain a consistent demand, resulting in increased and stable rental yields. The blend of luxury and financial security makes branded residences an attractive option for investors seeking both comfort and financial prosperity,” elaborates Louise Heatley, Owner and Managing Director of Exclusive Links Real Estate Brokers.

Do branded residences make a good investment?

As per the data shared by Allsopp & Allsopp, branded residences can see up to a 70 per cent difference in rental prices compared to non-branded residences. And more often than not branded residences outperform non-branded luxury apartments in terms of long-term value retention and rental yields.

Moreover, branded developments consistently uphold superior standards in design, construction, and upkeep, ultimately resulting in enhanced value retention over time. Additionally, these establishments provide exclusive services and amenities such as concierge, housekeeping, and potential access to hotel facilities, making them highly appealing to both potential buyers and tenants.

“The yearly rent for a two-bedroom unit in branded residences like Banyan Tree (JLT) is between $51,771-87,193 (AED 190,000-320,000), compared to $24,523-40,872 (AED 90,000-150,000) for non-branded units in the same area. In Palm Jumeirah, a two-bedroom unit in a branded residence like Kempinski Palm Residence can go up to $1.36 million (AED 5 million), while non-branded units sell for around $820,000 (AED 3 million). As per our research, branded residences are expected to see higher yields in the rental market due to the current peak in sales prices per square feet, and off-plan projects as well, are predicted to result in significant capital appreciation upon completion,” says Lewis Allsopp, Chairman, Allsopp & Allsopp Group.

Heatley, agreeing with Allsopp, states that a 1,000-square-feet one-bedroom unit in Armani Residences rents for $68,000 (AED 250K) per year, while a similar unit in Burj Vista rents for $40,872 (AED 150K) annually. Similarly, a two-bedroom unit at Atlantis, The Royal rents for around $163,000 (AED 600K) per year, compared to $95,000 (AED 350K) annually in Oceana of a similar size.

“Investors in the branded residence market value brand names for their credibility, exclusivity, history, and reputation. Brands with a strong global reach and luxury reputation like Four Seasons, Ritz-Carlton, and Mandarin Oriental are highly sought after. These brands have a history of delivering exceptional experiences and are synonymous with luxury and prestige, making properties associated with them attractive investments for investors seeking superior value and potential returns,” adds Heatley.

Is it all sunshine and roses?

Despite their appeal, branded residences have drawbacks, which investors should consider before the purchase. For instance, initial purchase costs are typically higher, as these properties are associated with prestigious brands.

Additionally, annual service charges to maintain top-tier amenities are significantly higher than those for non-branded properties. Investors and residents may face restrictions on property use and renovations due to rules and regulations, limiting flexibility. There is also a risk associated with the brand itself—any negative publicity or controversies could impact property values and demand, ultimately affecting investor returns.

“Branded residences tend to attract High-Net-Worth-Individuals (HNWIs), thereby narrowing the potential buyer pool. This exclusivity could result in longer resale periods or challenges in finding tenants, especially in times of economic uncertainty or market changes,” says Heatley.

“With only a limited number of branded residences in the past, they always had a unique selling proposition. However, with the recent influx of numerous branded residences into the market, the future performance of these units in the face of increased competition is yet to be determined,” says Barnaby Crompton, a luxury realtor.

He continues, “So if you are considering purchasing an off-plan property, you should be prepared to hold onto it and make timely instalment payments until the project is completed. This is when you will truly benefit from the full value of the asset. It is not advisable to buy an off-plan property to quickly sell it within a short period. The potential returns are minimal and may not justify the associated risks.”

In conclusion

Various factors, such as risks in the local and global economic environment and a limited number of potential buyers, may affect the success of projects. Nonetheless, well-known brands with solid reputations and a dedicated customer base are poised to maintain their value and minimise the risks linked to market saturation, believe experts.

“Luxury never really goes out of style, whether it is a daily commodity or a property. What truly sets branded residences apart is the lifestyle they offer, complete with convenience, top-of-the-line amenities, and exceptional services,” states Allsopp.

He continues, “There will always be a market for people seeking this type of living, especially in a city like Dubai which has become synonymous with luxury in every aspect. Additionally, branded residences typically have a limited number of units per project, so an increase in supply does not necessarily imply market saturation. As the market evolves, more brands continue to enter and developers improve with each project, creating further room for growth in this sector. So, high-quality supply will likely fuel this expansion, not hinder it.”

“The increasing global instability has led to a rise in HNWIs relocating to Dubai, attracted by its security, safety, business opportunities, and favourable tax environment. Hence, strong demand from investors and end-users will lead to absorption of the large number of branded residences entering the market, with prices in Dubai being more than half that of other major cities,” concludes Liddiard.