Stock Dubai skyline city
Bank lending is yet to reach private developers in a big way, which partially explains the drastic drop in capital expenditure, says Pantheon chief. Image Credit: Ahmed Ramzan/Gulf News

Dubai: Dubai’s land values have dropped sharply this year – but that’s still not helping developers to launch new projects.

“We are seeing distress sales of land that were owned by investors who had plans to launch projects,” said Kalpesh Kinariwala, Chairman of Pantheon Group. “But in today’s market conditions, there is little appetite among most developers for new offplan launches.

“That’s why these investor-developers are selling their land holdings at much reduced prices… and that’s brought on value drops across the board.”

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A new reality

If land costs made up 20-25 per cent of a project’s overall costs at the market’s peak, the land component has slipped to as low as 9-10 per cent. In the last two years, this had been hovering in the 15-16 per cent range.

“Distress sales don’t just hurt property values – they do the same with land,” said Kinariwala. “In a way it’s good because this takes away all those non-serious players from the market. These adjustments on land values, however disruptive they might be, is something the market and well-funded developers can absorb.”

Some private developers had been calling for a level playing field between private and government-owned developers. There have been calls for some softening in the requirements related to land purchases, specifically the one that says developers must pay off land costs in full before they can launch a project.

Kalpesh Kinariwala
With land values dropping, this is the best time to stock up on plots, according to Kalpesh Kinariwala. Image Credit: Gulf News Archive

Problems persist

Deflating land values might help with building up a land bank, but private developers still have a fight on their hands. The biggest issue most of them face is having access to bank finance.

“Yes, the Central Bank has told banks to raise their lending beyond the 20 per cent cut-off,” said Kinariwala. “But in actual practice, private developers are seeing very little of that.

“Banks are just providing more lending to the three or five biggest developers in town - and meet the relaxed lending norms to real estate. That’s no help.”

And because private developers are seeing less funding come their way, their prospects to launch new projects gets stymied. “Even with land values dropping, there’s still the 90 per cent of the project cost they still need to find,” he added. “This explains why there’s been such a sharp drop in new capex (capital expenditure) from private developers.

“Sure, market situation post-COVID-19 has played its part, but lack of liquidity support is the biggest burden on private developers. When they are cut off from bank support, there’s little incentive to buy more land, launch new projects.”

Talk of new

This month should see some launches taking place, with the upcoming Cityscape event acting as an incentive. It’s not clear at this stage whether these would be additional releases at their existing projects or brand new ones altogether. As far as buying activity is concerned, ready properties are the clear choice this year.

That’s not dissuading Pantheon from confirming two new launches – one in December and the other by mid-2021.

Stick with favoured spot

“The land’s been bought in Jumeirah Village Circle, which is where we have the earlier two ventures,” the Chairman said. “One of them will be delivered in the coming weeks.

“We are ready for the two new launches and which will cost a combined Dh300 million plus. There remains a core investor group who will always see value in picking up offplan property in Dubai. That’s the group we are going for.”

Pantheon Project in JVC
A Pantheon project at Jumeirah Village Circle. The developer has confirmed plans to launch another in December, followed by an upscale project by June next. Combined investments will be over Dh300 million. Image Credit: Gulf News Archive