Dubai: One thing is for sure — Dubai’s property values are unlikely to record any sharp increases in the new year. Developers and their off-plan ambitions will ensure that prices remain grounded.
“There has been no appreciation in off-plan launch prices,” said Firas Al Msaddi, CEO of fäm Properties. “And developers are still supplying the same range of products in new phases and with fresh payment plans and more attractive offers, including Dubai Land Department (fee) waivers or post-handover payment plans.”
All of which makes it doubly difficult for individuals to try and sell off their properties in the secondary market and at a premium to what they bought. “It’s almost impossible to resell because they can’t compete with the developer,” said Al Msaddi.
“If you bought in January and has paid 30-40 per cent and if I come to buy from you, I have to cough up the 40 per cent and a premium ... which doesn’t exist today. But if I go to any developer, I can buy in the same project and get a fresh payment plan plus be part of any sales promotions.
According to him, there has been no price appreciation in the off-plan space through this year and that effectively means nothing much can happen on secondary market values as well. All of which makes it easier for anyone wanting to buy now. But for a seller (other than a developer), their only option would be to wait until the market picks up — whenever than happens — or to sell at a discount to the current market rates.
Passing on the cost
After an action-packed three quarters during which off-plan launches boomed, there has been some tailing off since mid-October. It could be that developers are waiting until 2018 to get back into their launch mode again. Or, as some industry sources say, developers are biding their time to gauge how UAE consumers adjust to the roll-out of VAT. (Residential sales will be zero rated, but prospective buyers, especially end-users, will need some getting used to in managing their finances.)
Even developers will have some adjustments to make. In the current market situation, they cannot just pass on their VAT costs on construction to their property buyers. It will only mean losing out on buyers.
“These days, the sales prices haven’t left any decent buffer for developers. The way developers make their money, they need to invest less equity, get funds from banks and the rest from off-plan sales,” said Al Msaddi. “This means off-plan sales and the time frame to actually get the downpayments becomes extremely time-sensitive.
“Sometimes, it’s more important than their margins. If a developer invested 20 per cent equity, even if he makes 5 per cent, it’s still 25 per cent on equity, which is not bad if you annualise it.
“But if the developer has to wait for off-plan sales and payments to come, he will have to inject equity from his own pocket. And his margin from a ROI [return on investment] standpoint will become lower and lower ... to the extent it becomes not worth selling.”
Developers still have reasons to be thankful on their cost side. Land prices are no longer going recording the steep markups of two years ago.
Re-zoning
According to Al Msaddi, the extensive re-zoning efforts on the part of master-developers have played their part.
“In 2014, they [investors] made so much money on land,” he added. “Land sold in 2012 for Dh190 per square foot doubled in price in one year. For instance, in Downtown, there was a doubling in proven transactions ... and these were being advertised for even more. There were plots being advertised in Downtown for Dh550 as opposed to Dh375-Dh400.”
That is when master-developers intervened. “They started re-zoning and we saw a lot of that in Majan and Arjan. This created smaller plots and that killed the momentum of trading in land. And you also had for the first time freehold plots in Satwa, Nad Al Sheba and Jebel Ali coming from master-developers.
“Whoever is holding land or trading now, they understand there is no reason for land prices to appreciate. Transactions have increased, but not the prices. And now, plot buyers are doing so to develop — in 95 per cent of the cases.”
