Dubai property needs time to adjust to Expo 2020 postponement
Cheap funds need to be available to cash-lite developers and prevent projects stalling
Dubai: Dubai’s property market will get more time to adjust its supply and demand situation now that the Expo 2020 event is likely to be postponed by 12 months. But, equally important, developers will still need access to new funding - and at a cheaper cost - to make sure ongoing projects do not stall.
Not surprisingly, March recorded extremely low transaction activity, though there were a few land sales that still went ahead as buyers wanted to make use of the soft property values. There was even a near Dh40 million plus deal for an Emirates Hill villa, according to informed sources, in what was seen as a “value-for-money” transaction because of the market circumstances.
But with Dubai formally requesting the Expo 2020 governing body for a postponement, the wider real estate market will have to make adjustments. There was a rush towards completion as developers wanted to finish off ahead of the originally scheduled October opening of the Expo.
Now, with that deadline pressure likely to ease, developers could bring in a few changes on their completion deadlines.
The Government can facilitate more measures such as waiving of fees related to everything such as building permits, inspection, service fees, etc.. This, however, only gets the sector and the economy “disaster relief” that mostly covers losses as demand has essentially gone down to zero.
“Estimates of anywhere between 30,000- to 60,000 new homes being completed is now illusory in the extreme,” said Sameer Lakhani, Managing Director at Global Capital Partners. “More likely, we will see no more than 10,000-15,000 units being delivered this year.”
If so, that should be in the best interests of the property market… fewer new homes will mean less risk of oversupply, which is what developers and investors had been worried about these last three years.
So far this year, there have been only two major offplan pushes - by Danube and Samana. The master-developers have been quiet, and since February 15, everyone’s focus was fixated on combating the COVID-19.
In fact, some see opportunities - “I believe that over the summer people will travel regionally more than internationally for various reasons - economics, fear factor, time availability and other insecurities,” said Vinayak Mahtani, CEO of bnbme.
“I see the GCC community coming to Dubai simply because no one has to offer what Dubai does. In addition, I also see many people moving away from mass gatherings, especially staying at large hotels.
“The fact that Expo may get pushed back a year also benefits as it allows the world to come to terms with what has happened and head for some sort of normalcy.”
Danger of stalling
If investors take their time to return, developers could find themselves short of funds. This is the biggest short-term risk - “There will be a lot more stalled projects and those that will continue will be delayed as working capital shortages will reverberate throughout the sector,” said Lakhani.
“The immediate challenge is to get liquidity flowing again. This can only come if the spigots are turned on by banks extending working capital facilities, suspending monthly payments across the board for at least three months.”
Developers with existing projects can downsize and this way manage their costs better
Central Bank directives
In its Dh100 billion stimulus package, the UAE Central Bank had specific references on easier access to mortgages, as well as extended payment periods for businesses. The latest interest rate cuts will make the cost of funds less expensive… provided they do get the funds.
According to Samir Munshi, Managing Director at Silver Heights consultancy, “There are only two ways small/mid-size developers can tackle this slowdown - one, try for alternate funding, but which come at higher interest rates of 12 per cent or more. But if they get lucky with bank support, there’s nothing better than that.
“Two, developers with existing projects can downsize and this way manage their costs better. Build fewer floors, reduce the build’s footprint, there are so many ways costs can still be brought down.”
Direct relief
Real estate sources are hopeful the UAE government will come up with specific relief packages to see them through this crisis. Cancelling government-related fees would be one step, but sources say more help will be needed given the severity of the COVID-19 impose slowdown of business activity.
“Developers, specifically, will hurt and cashflow will be an issue,” said Kalpesh Sampath, Director at SPF Realty. “They should approach RERA (Real Estate Regulatory Agency) to request for cancellation of projects for which approvals were taken but no major funds spent “Two, consolidate projects in an area between two or more developers They could even consider mergers or acquisitions.
“RERA should consider giving developers a payment “holiday” for the next three months or more.
“And eventually, there could be government relief packages for real estate - developers, contractors and brokers. Confidence is what is more important now than short-term profits.”
RERA should consider giving developers a payment “holiday” for the next three months or more
2. For a first time UAE national buyer, this would increase the ratio from 80 per cent to 85 per cent for properties below Dh5 million and from 70 per cent to 75 per cent for homes above Dh5 million.
3. Increase the maximum offplan loan-to-value from 50 per cent to 55.
4. Raise the maximum exposure banks can have to the UAE real estate sector from 20 per cent to 30.
- Credit: Knight Frank
I see the GCC community coming to Dubai simply because no one has to offer what Dubai does