Michele Howe reports on how to get the maximum value per square foot out of a real estate investment.
Michele Howe reports on how to get the maximum value per square foot out of a real estate investment.
Location may be the key to success in real estate, but selecting the right plot of land is only the start. For a residential development to be a success, be it a vast residential community or a single tower block, there are a range of factors that developers need to consider.
To a first time visitor to the region, the frenzied pace of construction in the UAE could easily give the impression that this is an area where you can't go wrong with an investment in real estate. Yet with talk persisting of the market being overheated, at the back of every developer's mind is the fear of ending up with a vacant plot of land or a half-empty tower block. What can developers do to increase their chances of success?
Proper market research is the primary consideration, says Charles E. Biele III, executive director development at Emaar. "The first thing is to take a precise look at the market," he says.
"Then begin planning for a community that fits the market's needs while being mindful of the competition. The initial phases of planning involve identifying the project scope and scale given the plot size, location and other variables. Then you need to consider the proximity to the city which will play a role in what type of development you do."
A plot of land closer to the city is best used for a dense development with towers, for example, while a suburban location is more suited to a less dense villa community.
Keeping the end user in mind is critical in the early stages of working on a project, says real estate developer Nakheel. "It all depends on the individual project and what market it is aiming at. For example, a high-end residential community is going to have very different demands than a high density residential community," a spokesperson from Nakheel comments.
In a competitive market, ensuring adequate access to amenities is crucial, particularly for suburban residential developments.
"If you want to make your residential development have a higher value, serve the needs of your own residents within the values of your development, provide them with convenient spending opportunities, and create 24-hour activity zones, that's a major part," advises Ivar Krasinski, principal at design firm Burt Hill.
Some parts of Dubai Marina come close to that, he adds. "People don't have any reason to leave and spend time elsewhere. A the same time, when you have proximity to a 24-hour zone for your residential development, then that instantly commands a premium," he says.
"It's really looking at a more global scale and global perspective of how a residential development is planned. It has to be seen as part of an overall community."
Use of space
Efficient distribution of space within a residential development is also important in adding value. While regional developers traditionally neglected open space in favour of commercial or residential usage, they are now putting more importance on including open space within a development.
Landscaped grounds, play areas for children and jogging tracks are all seen as a means by which a developer can command a premium. Discovery Gardens is one such example - more than 30% of the total space is given over to landscaping, according to the developer Nakheel.
What is important, however, stresses Biele, is not merely the inclusion of open space but how this space is used in a development.
"Open space for the sake of having space doesn't create the value," he says. "What creates the value is the use of the open space for landscaping, for example."
These are the things that really appeal to the end user, that drive demand and that create value for the community.
Giving a residential development a specific identity is another way in which a developer can seek to differentiate its project and add value.
This can be done in various ways: giving it a catchy name, for example, the Eye of Ajman; locating it near a visual point of interest, for example, Jumeirah Golf Estates; or having a novelty factor, for example, International City, which has bisected its original space into several different countries.
Making a development stand out from the crowd is critical in a competitive market, says Alex Vacha, deputy director, City of Arabia.
Talking about the development of the residential component of City of Arabia, he says: "The idea was to look at it like a community or a town that has developed around a river which is what you see in historical cities. That was the feel we wanted to give. It's a known fact that waterfront properties have a higher value than anything else."
"Whether it's a residential development or a project, it should not get lost. Unless you give it an identity with so many projects coming up, it will lose that placing in the market," he warns.
Proximity to a specific attraction, such as an icon, can give a major boost to the value of a property, points out Krasinski.
He cites Burj Dubai and the surrounding downtown Dubai area as an example. "[There], you've got a building that by itself is not necessarily producing such a good return but it acts as a really good beacon that attracts a lot of development around it," he says. "[It] makes quite a bit of money for the developer and also creates a focus for the community."
Many of these considerations are equally valid at the other end of the scale, once the master developer has sold plots of lands to smaller developers.
Prices vary considerably between residential properties in the UAE with the highest price at current rates to buy an apartment in Dubai approximately US $3,844 (The Old Town Island) per square foot against an average price of US $1,400 per square foot, according to data from estate agency Better Homes.
For a villa, the difference is lower but still dramatic. The highest price at current rates for a villa in Dubai is approximately US $2,810 per square foot (Burj Dubai Downtown) while the average is approximately US $1,395 per square foot.
As previously stated, location obviously has a large bearing on the value of a development. But beyond that, what are the factors that will add value to a property? And why is it that on an identical plot of land some properties still sell much faster than others?
Clever distribution of space is, again, a must in exploiting the full potential of a real estate investment for developers.
Flexibility at the structural stage can significantly enhance the value of a property, says Burt Hill's Krasinski.
"Developers have previously said; ÃƒÂ¢Ã¢â€šÂ¬Ã‹Å“we don't want to see columns in our apartments; we don't want to see this kind of intrusion in the usual space'...but now they are starting to realise if you do have a structure that is independent from the dividing wall then you are really able to change your unit mix until the last moment, meaning that as the market demand changes you as a developer can adapt, which is a very useful thing," he explains.
Flexibility within the unit layout can also help the developer to get a bigger return on investment. Including movable partitions, for example, can give a developer greater leverage on the market.
"[The idea is that] for a given number of square feet, the buyer can actually have more varied use of the spaces and obviously it adds value to it. It doesn't really change the construction cost much, but it really adds a lot of value to the end user," says Krasinski.
Flexibility at the fit-out can also add a premium to a development. For example, being able to change the outside faces of cabinets or closet doors at the last minute enables matching of the flats to the different personalities of buyers, even at the very late stages of construction.
Mohammed Nimer, CEO of MAG Group Properties, counts branding as a key means of adding value to its portfolio. The company, which owns several towers within the 79-tower Jumeirah Lake Towers development in Dubai, offers a similar distribution of space in each property.
"This means that in all our projects, you can see there is something common in all of them," Nimer explains. "For each apartment, whether one or two bed, it has to have an entrance, it has to have a guest toilet, a master bedroom. It has to be there is no room less than 15-17 metres square."
Exploitation of the location is also important, Nimer adds. In its buildings at Jumeirah Lake Towers, MAG put a curtain wall into the design, consisting of a glass panel from top to bottom giving a full view of the lakes. It is important in a city like Dubai, which is often described as a concrete jungle, to take full advantage of any views there may be from the development, says Nimer.
Rayomond Dastur, chief operating officer at ETA Star Properties, which also has a development at Jumeirah Lake Towers, says adding green design is one way that it seeks to differentiate itself.
The firm is looking to incorporate sustainable design features such as power-saving fittings and low energy glass at some of its properties. However, Dastur notes that ultimately it is the location of the project that will determine its premium.
All of these points are connected to one thing - the role that design plays at the build stage in fixing a development's market value.
"Design is one of the most crucial things especially in a hot market," says Krasinski. "You've got many developers building many different buildings...and all the competing interests are going to be producing a product that's very similar in terms of size, in terms of cost per square foot, in terms of finishes."
"So the question for the developer is how to stand out in a crowd, because everyone has very similar specs. What is it that keeps a developer's project from becoming just another face in a crowd of similar offerings? At the end of the day, it's design."
For instance, given the choice between a unit of a given size in a residential-only enclave where the masterplanning hasn't really been considered and there is open space but no proper use of it, and a unit of an equal size on a plot of land where more thought has gone into the making the development mixed use, the second option instantly creates more value.
By the same token, a building may feature a large apartment, but if the building isn't well thought out, it becomes a forgettable building. Consequently, it has a lower value than a smaller building with more aesthetic appeal.
Real estate is by its very nature a risky game and no developer entering a residential project can see into the future. But by covering all bases, they can at least minimise the risk. Selecting the right plot of land is a good start, but what comes next is crucial.