Dubai looks for phased recovery

Investors may be eager for the market to jumpstart to even a faint reflection of what it was until the fourth quarter of last year, but government officials expect a more phased recovery. It will be coupled with putting proper procedures in place for a much healthier future.

“We want the market to stay down for now as people will make mistakes again if it suddenly bounces back,'' reckons Marwan Bin Ghalita, RERA's CEO. “The market needs to grow slowly to be healthy in one curve, not peaks and troughs.''

RERA took a close look at residential supply figures to determine the ‘real' supply coming online over the next two years.

Records state that 29,319 units were completed in 2008, while this year will see an additional 31,003 units entering the market, and complemented by another 44,880 in 2010. Well, over half the total of these three years — or over 62,000 units — is from Dubai's master developers.

Second-guessing the supply side, as the figures constantly change, has been a favourite past time of experts, more so to establish whether there would be an over-supply or not.

“When everything was ‘OK', some even predicted 145,000 units,'' says Bin Ghalita. “But, after reviewing these figures with developers and contractors, we believe that 20 per cent of the 2009 and 40 per cent of the 2010 supply may be delayed due to market conditions.''

Many will be wondering whether this means too many — or even too few — units able to drive prices down or up. But, Bin Ghalita insinuates that they may well be just right.

Supply is being carefully crafted according to the market situation. Less registered developers now The number of registered developers plays a crucial role, and they have dropped from over 800 to 427 to date.

“This is because the high numbers were related to land investors thinking of developing or holding on to it rather than developers, which an investor becomes once he decides to sell off-plan,'' adds Bin Ghalita.

What has happened is that about half of the would-be developers have decided not to go ahead for now. “They had no intent to sell and wanted to be taken out of our list of developers,'' Bin Ghalita explains, adding that some registered in different departments and some merged their companies.

“The drop is a good sign for me as a regulator. It gives the market the units needed. We can control supply via the number of developers coming into the city and limiting building permits along with other authorities.''

The Land Department has, in the meantime, taken it upon itself to put the slowdown here into some sort of perspective. Based on this, Dubai has fared a lot better than Europe and Japan where sales have shrunk by 70 to 77 per cent, Australia and New Zealand are worse off with an 88 per cent decline.

This is for the period between the first quarter of 2007 and the last quarter of 2008. The Middle East, in general, experienced a drop of 66 per cent.

Dip in land transactions

The Land Department's records for Dubai, contrasting the first two months of 2008 and 2009, state a 45 per cent drop in comparison.

The records show a drop in value of transactions from around Dh26 billion to around Dh14 billion, mortgage values dropped from Dh13 billion to Dh4.6 billion, and land transactions dipped by 40 per cent from around Dh12 billion to Dh7 billion.

“The values per square foot for land, however, are nearly the same today than at the beginning of 2008,'' informs Mohammad Sultan Thani, Assistant Director-General of Land Department. This would effectively mean that land prices have reverted back to a more reasonable level.

‘No collapse in values'

Bin Ghalita adds, “This is far away from the negative headlines in the international media alluding to Dubai failing. Nobody can say the international crisis didn't have an effect on the market, but values haven't collapsed.''

Looking at the Dubai Land Department's last two weeks of transaction data, weekly land trades of around 40 to 50, running into billions of dirhams, indicate that there is fresh impetus coming through as far as new developers making an entry are concerned.

“Three investors from India, for example, will start a new project. They are taking advantage of the land being cheaper now, construction costs are down and they appreciate that the investors feel safer as the developer will be compliant with new regulations, increasing confidence,'' Bin Ghalita contends.

Equally, apartment sales started increasing to 735 last week, though the average sales price seems to have dropped significantly, at around Dh800,00 (if one takes the total sales transactions figure and divides by number of apartments).

Villa sales (including Emirates Hills, Arabian Ranches and Palm Jumeirah) equally increased to 25 sold last week and the average sales value (estimated as with apartments) was probably anywhere in between million to just under Dh2 million.

Around 140 mortgages on residential properties have been registered over the last two weeks, indicating things are starting to move in that domain, with loan values, again estimated, to be on the lower side up to Dh800,000.

Good news for buyers

Sales prices advertised at Arabian Ranches in quite a few instances have more than halved since the peak last year and rents are heading in a similar direction. But, that is good news as prices at 2006 levels or lower is obviously encouraging some to buy.

“The peak of 2008 has fallen away and current prices have eroded most of 2007's prices, back to a 2006 pricing structure. This makes for a good long-term return growth,'' comments Peter Penhall, Senior Executive Officer of Gowealthy Capital.