Sale of Nakheel units to push real estate revival

Dubai: The first sales of residential units on the Palm Jumeirah in 2003 were the trigger that launched Dubai's real estate boom.

Now, with Nakheel restarting work on some of its stalled projects, the real estate sector is seemingly hopeful of a pick-up in momentum, albeit one of more modest proportions.

The sentiment among industry observers is that Nakheel would test the market interest by releasing properties for sale in the clusters where it has restarted work, which include Al Furjan as well as Jumeirah Village.

"It's conceivable Nakh-eel would put together a sales programme for these projects at some point now that it has got back to delivering developments," said Nick Maclean, the regional managing director at CB Richard Ellis.

"Going forward, the best located assets and answering to a certain delivery quality will eventually find favour with buyers. There are choices out there, and so is demand for the right sort of assets."

Following the property market crash in late 2008 and as it faced its own financial issues, Nakheel decided to place many of its existing projects on hold. Investors in these projects were given options to move to Nakheel's other developments which were either completed or close to it.

In these instances, Nakheel also allowed investors who had made multiple payments on the delayed projects to sell their stakes to third-party investors.

"I won't say Nakheel has since taken back most of the properties associated with the delayed projects," Maclean said.

"While Nakheel had an active interest in re-acquiring these, in many instances they were frustrated when it came to contacting the investors. There were also some disputes related to the re-acquisition efforts."

No one expects an immediate upturn in interest — and by extension of values — at these projects, even in secondary market transactions. For that to happen and be substantial at that, there will have to be proof of Nakheel's intentions on the ground.

"Nakheel's announcement on the restart of six of its projects in Dubai including Jumeirah Park, Jumeirah Village and Al Badrah comes as a welcome relief for investors," said a report issued by Cluttons this week.

"Cluttons predicts that secondary sales in these projects, which are nearing completion, will restart, with an increase in three- and four-bedroom villas."

The emphasis is on a gradual return of investor interest, "as there will be further development and people actually get to see the construction works", said Ranjeet Chavan, partner at SPF Realty, a property firm which has had a sizeable exposure to Nakheel's developments in the past.

At their peak, a seven-bedroom residence in Jumeirah Park was going for Dh7 million or thereabouts in the secondary market, while now it is quoted at Dh3.5 million. A five-bedroom unit was quoted at more than Dh6 million in mid-2008, but is now Dh2.8 million.

"Even at these prices there are not many takers because the impression is that a further drop from these levels is still possible," Chavan said.

According to him, Nakheel will now be in a position to control future supplies, which will also help.

"This will regulate ‘over-supply', and thus achieve some kind of sustainable pricing at that point in time in the market."