In UAE real estate, developers should let architectural design speak for themselves

Perhaps this is why in the mid-end, the primary market has a convergence of unit types and styles, while it is only in the secondary market that we see price differentiation a few years later. However, there is no doubt that the architecture and design of buildings have positive externalities, not only for the asset itself, but for the community as a whole. This deserves further scrutiny.

A private market for quality buildings can only exist if users of buildings are willing to pay more than the opportunity cost of developers to create such buildings. Lost in the most price-sensitive midrange marketing materials, variables like space, amenities, and quality begin to dominate any pricing model.

However, as the community grows as a whole, developers either band together to provide essentially homogeneous space and amenities, or create enough product differentiation that leads to higher price demand. In the macro environment, the greater the product variability, the greater the price difference.

But as prices climbed in the mid-end of the market, the TOM (time to market) required for asset sales began to lengthen. Therefore, there is a clear trade-off between the price of the asset and the timing of the sale. However, in the process of price discovery mechanism, there is a qualitative change in aesthetics.

In general, as products move higher-end, modern and European styles begin to dominate architectural design and become part of the price discovery process. In the mid-range, what we’re seeing is landscape, amenities, and size starting to dominate pricing models.

However, even here, there are studies showing that variables such as landscape have an impact of up to 3-4% on the overall pricing of an asset. Research is inclusive in academia because there are many stakeholders, each of whom assess its costs and benefits differently. When we look at building analysis at the micro level, the results start to come into focus.

In JVC, the impact appears to be greatest, with a multivariate pricing model where the difference in pricing between any two buildings, corridor space, façade style, and landscaping, among other attributes, can lead to pricing differences of up to 20 percent. Similar studies did not find any price differences in areas where products such as Sports City and Discovery Gardens were more homogeneous.

This lack of price differentials is starting to feed itself in the form of longer TOM cycles and insufficient demand (misunderstood as oversupply in the past). To be sure, these studies are based on lists, surveys, and TOM factors, but the results remain clear: good design has a huge impact on the pricing of middle-income real estate assets.

This is not surprising to us, even more than 70 years ago, when Le Courbusier articulated this in his “toolbox” from idea to architecture, when he said: “Price is not only It’s a number; it’s a satisfying sacrifice”.

Building value in middle-income neighborhoods emerges over time, both as a socially positive externality and as an increase in private value. In Dubai, this is most evident in areas such as JVC.

What’s more, developers have started to take notice of this trend and are responding positively to add value to the rest of the community. This trend is likely to accelerate as the market begins to re-emphasize the middle-income group, especially in the current environment of rising interest rates.