Dubai: Even 13,000 new homes going on sale in Dubai during the first six months do not seem to have much of an impact on property values. In fact, there seems to be a major disconnect building up between what is turning out to be ample supply and prices.
And, not surprisingly, there are sharp variations depending on the location. There were only 360 apartments released at Dubai Marina in the first half of 2017, principally from the Vida Residences project.
But property values across Dubai Marina are down 3.7 per cent in the year to date, according to data from Reidin-GCP.
The average price of transaction as of June at the Marina was Dh1,474 a square foot.
“But there were 1,457 units launched in Business Bay and yet prices there have remained flat at Dh1,400 psf,” said Sameer Lakhani, Managing Director at the consultancy Global Capital Partners.
“And in JVC (Jumeirah Village Circle) there were just 647 units launched and yet prices inched up by 2.1 per cent, to Dh914 psf.
“While these are all small movements, there appears to be latent demand that developers are tapping into at certain communities. This is obviously boosted by the fact that the more recent launches are accompanied by an ever increasing package of post-handover payment plans.
“Obviously, there could come a situation of oversupply in a particular community if the pace of launches continue. But developers too are become increasingly savvy in gauging the demand that is inherent in every community.”
Biggest worry
Thankfully, for the long-term health of the market, the sheer volume of new off-plan launches has not led to high unsold stock levels. It could be that the ever more generous payment schemes are convincing enough number of buyers to sign on the dotted line now.
The biggest worry among many industry sources is that high off-plan releases plus lacklustre demand would pull down prices just as things are starting to improve. But, so far, this has not come to pass.
“The city is now showing different pricing dynamics depending on where you are looking at,” said Lakhani.
“This is healthy and is also being seen in other parts of the world. In London, Zone 1 prices have barely moved since Brexit in mid-2016 even as other zones have fallen fairly significantly.”
In just over three weeks, Dubai’s developers would kick-start another round of major launches, especially around the Cityscape Global event next month. And this year there is the extra incentive that they can actually do the selling at their stands. It is the first time in nearly 10 years that the Dubai edition of Cityscape has been allowed to do so.
Would it mean that post-handover payment schemes could get even more generous? “There are instances in the private sector where even 10-year post-handover plans have been offered,” said Lakhani. “In current property value terms, this is equivalent to a significant price discount.
“And this is definitely eroding developer margins. At some point the pendulum will have to swing the other way as developers will start to resist. When that happens, it will be interesting to see how the market reacts as the punchbowl of incentives are taken away.”
Factbox: The secondary market comes into being at Dubai South
One of the best performing freehold residential clusters in the city, Dubai South, is starting to develop a fairly active secondary market.
Even as 864 new units were released as off-plan in the first six months, the location is still seeing quite a bit of buying and selling on already acquired units.
“Prices have been at or around Dh800 per square foot as against the Dh700-Dh750 psf last year,” states the Reidin-GCP report.
”We have seen a clear increase in values as developers spruce up their offerings.”
