Off-plan residences in Dubai Marina
Off-plan residences in Dubai Marina Image Credit: Supplied

Dubai: Here’s a warning for developers in Dubai — do not jack up property prices just because you are offering extra-long post-handover payment plans.

Because if you do, there’s a higher risk of payment defaults. And that, as every developer knows only too well, can be fatal to their interests.

“Selling is the easy part … because the developer and buyer believe the longer payment period offers a cushion,” said Firas Al Msaddi, CEO of fam Properties. “The obstacles come when the market drops.

“If at that time, the value of that property drops higher than the payment due, it becomes a disincentive for the buyer to make those instalments. More so, if the down payment itself was on the lower side.

“Say, the property’s worth Dh1 million, the buyer’s paid off Dh50,000. Then the market pressures take the value down to Dh700,000. Then the buyer would think it’s better to forego the payments made rather than keep paying up to Dh1 million. Because he is better off exiting rather than pay and end up with a bigger loss.

“Developers can reduce the risk by keeping their selling price at more realistic levels.”

Over supply

Such a drop could happen even without an outright downturn. Too much supply at any one location — or even in adjoining areas — could tell on property values across the board. It’s already happening — buyers have seen their brand new properties shed more than 10 per cent between the purchase in 2014-15 to receiving the keys just before summer. And when they sold it last month, they had to sacrifice another 5 per cent on top of that.

This is why getting a grip on new supply for the next three to five years is so vital for Dubai’s real estate. This is the top agenda for the newly created Higher Committee set up by Dubai Government to come up with guidelines to revive the sector.