Types of Property Valuations Used in Dubai

Introduction

Dubai's real estate market is one of the most dynamic in the world, with constant shifts in demand and supply making accurate property valuations crucial for buyers, sellers, and investors alike. When I first moved to Dubai, I had no idea how to value a property when I was looking to buy an apartment. I had to learn all of this from scratch, navigating through various valuation methods to make an informed decision. In this article, I'll explore the different methods of property valuation used in Dubai, providing a clear understanding of each to help you make smarter real estate decisions.

Market Comparison Approach

The market comparison approach is the most commonly used method for property valuation in Dubai. It involves valuing a property based on recent sales of similar properties in the same area, making it particularly effective in markets with high turnover and a wealth of comparable properties. In areas like Dubai Marina or Downtown Dubai, this method is highly effective. These areas are known for their high turnover rates and buildings full of similar units, making it easier to find comparable sales data. The main advantage of the market comparison approach is its reflection of current market conditions, making it reliable for areas with consistent sales activity. However, it can be less effective in niche areas where comparable sales data might be scarce. Off plan properties can also be harder to assess for this same reason.

Income Capitalisation Approach

The income capitalisation approach values a property based on its potential to generate income, typically used for commercial properties like rental units and office spaces. In Dubai, this method is predominantly used for commercial properties. For residential valuations, banks generally consider rental income as supplementary to salary. This was a personal challenge for me when I first tried to mortgage my property. I was renting out the rooms, which generated income, but since I didn’t have a job in Dubai, the bank wouldn’t consider my rental income on its own. While this approach's strength lies in its focus on income potential, it is often seen as less reliable for residential properties and can be complex, requiring accurate income data.

Cost Approach

The cost approach values a property based on the cost of rebuilding it from scratch, considering current construction costs and land value. This method is predominantly used by insurance companies, because their main concern is how much it would cost to rebuild a property in the event of major damage. Personally, I find this methodology flawed. It reminds me of the “labor theory of value” proposed by Karl Marx and even Adam Smith before him. Just because something is expensive to build doesn’t mean people will value it accordingly. This approach doesn’t always reflect the market’s true perception of value, which is based more on desirability than construction costs.

Automated Valuation Models (AVMs)

Automated Valuation Models (AVMs) use sophisticated algorithms and extensive databases to provide instant property valuations, making the process faster and more accessible. At YallaValue, we harness the power of machine learning in our AVMs to deliver quick and reliable property valuations across Dubai. Our models are continually updated to reflect the latest market data. The primary advantage of AVMs is their speed and convenience, making them ideal for initial valuations. However, they may require a human “sanity check,” especially when comparable data is lacking or highly variable.

Conclusion

We’ve explored several methods of property valuation in Dubai. For residential properties, the market comparison approach is prefered. It must be noted that AVMs can operate on any of the above methods (comparison, income or cost). At YallaValue our AVMs use the market comparison approach, and when a valuation report is purchased, the valuation team use the same approach too.