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File picture of Downtown Dubai. The battle for buyers in the offplan and secondary market will remain just as intense. But with offplan launches droppng, this could well be the year for ready homes. Image Credit: Gulf News archive

Dubai: Dubai will absorb a further 42,000 new homes (excluding those in Remraam) this year on top of the 30,143 units delivered through the whole of 2019 - more than enough to ensure property prices and rental values continue to remain under pressure.

This will also be the top priority for Dubai’s Higher Committee on Real Estate, which will come up with guidelines on optimum ways to manage future demand and supply.

For now, Dubai will have to factor in how best to deal with imminent supply.

“We believe 42,000 units — 42,109 to be precise — will make it to completion in 2020 and that’s only because these have gone past the 70 per cent mark in construction,” said Firas Al Msaddi, CEO of fam Properties.

“Now, it’s quite unlikely that developers behind these projects cannot finish the rest in the next 12 months. In fact, some of the expected completions will be of projects that were meant to be delivered much earlier than in 2020.”

If this materialises, the 41,000 odd units will represent a new high in terms of handovers in Dubai. But when placed in context with other numbers, this doesn’t look that impressive.

“Official data show that there are more than 157,630 units (excluding Remraam in Dubailand) under construction - of which 65,770 (excluding Remraam) are to be delivered this year,” said Al Msaddi. “But that’s never going to happen, and we will actually see the 42,000 new homes.”

Less is good

From a wider market perspective, having to deal with far fewer new home completions will be a good thing for Dubai real estate and its investors. Piling on more pressure from supply - especially when many worry about oversupply - would not have helped anyone in terms of price stability.

“The final delivery rate for 2019 is at 48 per cent, an improvement on previous years but not by only that much,” said Al Msaddi. (Delivery or materialisation rates indicate the difference between what was initially expected to be completed in a year and the actual final count. It also includes any rescheduled projects from previous years to be completed in 2019.)

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Firas Al Msaddi, CEO of fam Properties. says Dubai real estate sector needs to make a switch to secondary market deals rather than rely predominantly on offplan launches. Image Credit: Gulf News Archive

Based on fam’s data, sourced from Land Department transactions, there were 32,106 units ready in Dubai last year. There were a further 67,133 units that were supposed to have been complete during the period... but didn’t make the cut.

“Developers and investors will keep a close eye on future handovers - even if the population keeps increasing, it may take a good three to five years before all the new homes can be absorbed,” said Al Msaddi.

Who’s buying

The next few days will see more reports coming out on 2019 property transactions in Dubai. Market sources have been insistent that these need to be verifiable and stripped off any hype.

Al Msaddi says that international investors are still seeing yield opportunities in Dubai, even as rentals drop further as more supply comes to market.

“The best thing that’s happening right now is the pick up in the secondary market or for ready properties,” he added. “That’s where any future recovery will come from - and not from more offplan launches. If there’s no one to buy ready homes, what good will all the offplan launches do?

“Between 2018 and 2019, the decline in ready home sales was only 1.5 per cent (this includes plots because Land Department classifies them as “ready”). But that’s massive improvement on the 19 per cent fall ready home sales had in 2018 compared to 2017.

“Because investors will only keep coming in if they are convinced they can resell their assets in the secondary market. If it’s only developers and their offplan launches, the market cannot sustain itself.

“It needs to be a buyers’ market... as well as a seller’s.”

Ready vs. offplan

In the last two years, Dubai developers have done well for themselves using post-handover payment plans of three-five years and even longer, as well as offer direct financing for buyers. This explains offplan’s dominance during this period, and why demand for ready was so muted.

In 2017 and 2018, 86,241 new homes were launched as offplan, with most of their completions scheduled from mid-2020 onwards.

“This has sucked off liquidity that could have gone for secondary market deals,” said Al Msaddi. “It’s a misconception that offplan prices are lower than in ready. Look at Downtown - ready units are 25 per cent lower in the secondary market. And it’s not only the case at the Downtown.

“What Dubai’s property market needs is a consolidation in the secondary market.”

Three prospective busy spots for investors
According to Naval Vohra, CEO at Appello Real Estate, investors wanting to look beyond Dubai’s established locations should head their way to these three emerging destinations:

* Dubai Hills Estate
“It seems to be able to weather any market dips. Dubai Hills Estate fared well across all price points – no matter what the market fluctuations in 2019 – and has been a popular for both investors and end-users.”

* Bluewaters Island
“It has suddenly come alive thanks to new hotel launches. It took a while, but a raft of new launches means it’s going to appeal to a wider demographic and pull in the crowds – not least because of the first Caesars Palace hotels in the Middle East.”

* Dubai Creek Harbour
“People love living by the water - it’s a fact. And just a short drive from Downtown Dubai. Investors should look here because market trends show that waterfront properties are a great point of investment in Dubai, so even if you want to move out of your waterfront house after a while, you can lease out the property and receive a high return on investment.”

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When a new mall opens there, Dubai Hills Estate will figure even more prominently on investors' radar. Image Credit: Supplied