Dubai property market sees new micro-dynamics come into play

It looks like UAE property buyers have finally started to get the most amount of leverage over sellers in years.

Data points showing prices have started to fall reveal a market where developers (and sellers) have been willing to lower prices. (The sweeteners that have been long offered by developers in the form of outsized commissions were not enough to prevent a decline in some indices that were heavily tilted towards offplan sales).

In response to these data points, there has been an astonishing blizzard of apologist commentary stating that this is either a one-off, or that the index methodology needs updating. Even that the ready markets remain strong.

Despite these explanations, we know that depending on the area, prices have been falling for months now, and this trend is increasing. Behind this shifting power balance is the growing pipeline of supply. More than 300,000 units to be delivered in the next four years, and even if adjusted for the ‘actualization rates’ , by some metrics there are now more ‘for sale’ homes than at any point in the last six years.

On the demand side, given the lower competition, the bidding wars have started to dissipate. Developers looking to conserve on cash flows have increasingly started to resort to joint ventures with land banks, and/or have revived a tactic that was used in earlier periods of offering large discounts for upfront payments.

This has meant that properties have remained on the market for longer periods of time - according to one metric, the highest since February 2020.

This trend is being felt across the world. In the US, existing home sales fell by 5% on a month-on-month basis, and last year, home sales fell to their lowest level since 1995 despite a paucity of supply).

In Dubai, land prices registered their first price decline, along with lower volumes. Even though the explanation has been about supply chain worries, there has been a realization for months now that prices have diverged from their replacement value. This was most starkly highlighted by the yawning gap between offplan and ready prices, which has finally started to show some reversion.

In the refurbishment market, there have been deals where buyers have started to gain the upper hand by negotiating prices lower, with the number of deals that are falling through rising as buyers have the ability to walk away and pick sellers that are pricing more realistically.

The most talked about conversation point has been that buyers have been unwilling to pay large down payments, borrow at higher rates only to refurbish the house after that, thus adding to spiraling costs.

Likewise for new houses, the supply has risen to the point where it can meet more than a year of demand, again the highest point since the earlier boom-bust cycle of 2014.

What this means for retail buyers is that the greater choice is finally translating into lower prices and affordability. In JLT, the median price for ready homes is Dh1,530 vs. offplan, which is Dh2,370, a gap that is wider in areas like DubaiLand Residential Complex.

From brokers to speculators, egged on by analysts, there has been a model of financial risk that has led to homeowners who unwittingly sold ‘put’ options in the offplan market. Valuations have a way of reasserting themselves over time.

Investors have long known this that they have to be prepared for the vagaries of every market phenomena. Smart money and the retail kind is now preparing themselves for the next stage of the cycle.