Villas vs apartments in Dubai: What’s a better investment?

May 15, 2024 | Ramjee Iyer (Gulf Business Feature)

Villas vs apartments in Dubai: What’s a better investment?
The key to making an informed decision lies in recognising and leveraging the unique features of each property type to build a diversified investment portfolio

The rapid development of Dubai’s real estate has led to a continuous predicament among buyers and investors: villas or apartments?

Despite the existing competitive advantages of both properties, it is crucial to take a comparative look at what they offer.

It is often convenient to opt for the ‘apartment’ lifestyle, with amenities and facilities tailored to diversified consumer needs. However, when you need privacy and more space for your family, the urban villa model is designed for you.

Simultaneously, Dubai’s urbanisation and population concentration has fuelled the necessity for better lifestyles, which makes both property models feasible.

The key factor is to leverage consumer tendencies and dynamics in the long run to make the most of your investment.

Opportunities offered
Villas offer buyers a combination of space, privacy and the desire to make their accommodation as exclusive and unique as possible. Large areas and private amenities always appeal to high-net-worth individuals and families seeking privacy and a special experience.

Furthermore, apartments have a wider demand profile — from students and young workers to families and tourists. This results in high occupancy rates and less volatile revenue forms, ultimately representing a better long-term investment. However, it is important to remember that the prestige associated with villas often retains a stable value, even in fluctuating economic conditions.

Apartments, on the other hand, are the most common and advantageous to investors. They have the advantage of strategic locations based in the heart of Dubai with easy access to facilities such as hospitals, schools, transportation and business hubs.

Villas have fantastic potential for capital growth and income since they stand in the geographical hierarchy of VIP residents and expatriate locations. However, it would be best to explore the best of both property types and secure a diversified asset allocation.

Navigating niche markets
Currently, the Dubai property market is leaning towards apartments as a growing trend for investment. Various options such as luxury serviced apartments, co-living spaces, and themed communities cater to different lifestyle preferences. Investing wisely in these niche areas can lead to a well-rounded property portfolio and higher profits with minimal risks.

In contrast, villas offer less flexibility in keeping up with modern tenant preferences. The Ven numbering system, which links uniqueness to villa assets, tends to attract investors seeking individual benefits. Despite market fluctuations, specific villas in upscale developments maintain their value and appeal as status symbols and prestigious addresses, attracting wealthy tenants and ensuring demand from affluent populations.

Higher rental yields in Dubai
In Dubai, apartments traditionally generate higher rental incomes compared to other types of properties. According to Bayut’s analysis for the first quarter, areas such as Dubai Sports City, Dubai Silicon Oasis and Motor City are particularly attractive, offering up to a 10 per cent return on investment (ROI) based on projected rental yields.

Investors can enhance their returns through renovations and by offering luxurious amenities, as there is strong demand for such apartments.

Similarly, top-tier villas also yield high rental returns, especially in suburban areas. While rental yields for villas may vary depending on factors such as location and market conditions, they generally offer competitive returns due to their ‘prestige’ value and luxury features.

Furthermore, multi-unit apartments in condominium ownership are typically managed by a single owner or management company, facilitating cost-sharing among investors. This reduces the financial burden and enhances profitability.

Embracing technological disruption
Embracing innovation and technology in the real estate market provides investors with opportunities to optimise their assets.

Solutions like proof-of-ownership, digital space management, and machine learning-assisted property management streamline the entire housing process, making it more efficient. These innovations not only open up new avenues for profitability but also serve as catalysts for significant growth.

In contrast, villas lag significantly behind apartments in terms of technological integration. However, there is increasing demand from residents for these services, prompting landlords to respond accordingly. Developers are continuously integrating smart features such as home automation systems, modern security solutions, smart appliances, and energy management systems to meet these demands.

Growth potential
Investing in villas and apartments set in prime areas of Dubai amidst the city’s urbanisation and population growth offers significant opportunities. The emirate places great emphasis on sustainable development and innovation, which are integral to its long-term economic strategy.

Initiatives like the Dubai 2040 Urban Master Plan, which prioritises innovation and sustainability, underscore the promising direction for future growth and a stable environment.

Buy-to-let and buy-to-sell
In Dubai’s real estate market, investors can pursue two primary strategies: owner occupancy and house trading. The buy-to-let approach typically involves acquiring a property for rental purposes, ensuring a steady income stream from tenants. In addition to regular investment returns, investors can also benefit from long-term capital appreciation.

Given the expected rise in rental demand, this investment strategy offers a cost-effective route for those seeking sustainable long-term growth and income. Conversely, the buy-sell strategy entails purchasing an asset to sell it for a short-term profit. This method is often favoured by investors looking for advantageous deals in off-market transactions or seeking to capitalize on timing.

Dubai’s property market has a proven track record and is known to offer attractive returns for selling investors, making it an appealing option for those aiming for quick profits. These two mechanisms cater to investors with different objectives and risk profiles, offering diverse opportunities in the Dubai real estate landscape.

In conclusion, deciding between a villa or an apartment in Dubai presents numerous opportunities for investors. Villas offer timeless appeal, luxury amenities, and potential for capital appreciation, while apartments appeal to a broader market, boasting high occupancy rates and innovative technological features.

The key to making an informed decision lies in recognising and leveraging the unique features of each property type to build a diversified investment portfolio. One should consider their objectives, risk tolerance, and market trends before making a choice.

The writer, Ramjee Iyer, is the chairman and managing director of Acube Developments.