What is a room with a view worth?

One of the cardinal rules of purchasing a real estate asset has always been 'location, location and location'. However, contrary to popular belief, there is more to location when purchasing upper-end real estate assets. There is another wish-list item demanding consideration too: the view factor.

The price premium associated with a view has been of a subjective value in Dubai. However, there are decades of research that exist in global markets that quantify the effect. For instance, in New York, buildings that have a Central Park view trade at double to their counterparts with no view. Whereas in Perth, houses with a view of Swan Lake are 90 per cent higher compared to units with no view.

Due to the limited supply of units with a view, coupled with the hedonistic value attached, they trade at a higher price than their equivalents in the same postal code or even in the same building.

A similar analysis conducted in Dubai reveals that units with a view of a landmark or a body of water trade at a premium. For example, apartments in Jumeirah Beach Residence and the Palm Jumeirah both have units that are sea-facing and non-sea facing. The units with a sea view trade at a premium compared to the others with either a road or an obstructed view. The differential in full-sea views and accessibility have shown up systematically in the data for the front-facing buildings. The premiums in both communities for the superior views range from 10 to 20 per cent.

Dubai is also home to various man-made structures such as the Burj Khalifa, Burj Al Arab and the Atlantis that are sensational to look at. The surrounding buildings that have a view of these super-structures command a premium. For instance, in Downtown Dubai, the focal point of the community is the Burj Khalifa and the units that a have a view of this trade at a 15 per cent premium.

Moreover, studies in the US reveal that the premiums of a view increase over time. Data collected from the Coastal Business Journal illustrates the change of premiums of a lake view in Bellingham (USA) over time. It concludes that certain views extract a higher value than dwellings with no view. In addition, in many cases, the premiums increase over time. This attests to the fact that for the long-term investor, it is better to pay the premium for a view as the appreciation in future will be higher compared to units without a view.

A closer examination of the pricing of the Shoreline complex on the Palm Jumeirah reaffirms the premia that is paid for the sea side view apartments compared to the road views units. Over a five-year horizon, the premiums have increased by 63 per cent, which is in line with global market research. However, unlike launches in the first cycle where the premium for units with a better view were lower, in the second cycle, developers adjusted prices higher over time for units with a grander view.

When purchasing an apartment, the view may be a crucial influence in the premium. However, other factors such as layout and floor plan also affect the premiums associated with a unit. The value of a granular analysis suggests end-user buying patterns that only evolve over time. Preferences such as pedestrian access to schools and less noise pollution, alongside a greater demand for serenity and green patches should assist in guiding investors in gauging demand in other communities across Dubai.

As the end-user bandwagon continues to gather pace, such qualitative factors will come to the fore and it is only in the scrutiny of such behaviour will investors be able to determine superior investments from the subpar ones.

The writer is head of investor relations and research at Global Capital Partners. Views expressed are his own and do not reflect the newspaper's policies.

Source: Khaleej Times