Construction work in Dubai. Demand for ready units is down less than 10% on a year-on-year basis, data show. Image Credit: Sankha Kar/ Gulf News

Dubai: The Dubai property market is taking some time-off from its usual offplan sales rush. In the year to date, only 15,000 new properties (from 93 projects) were released by developers, compared to a high of 66,307 units (172 projects) last year and 37,802 units (from 125 projects) in 2016.

Even if these developers rev up launches in the coming weeks, it is unlikely they will come anywhere close to even the 2015 tally of 25,862 new homes (from 87 projects), according to fam Properties data. Even last week’s Cityscape Global reinforced the theme of going slow, with only a handful of new launches happening across the three-day period.

All of which makes sense, according to Firas Al Msaddi, CEO of fam. Because even unsold units come at a steep cost for the developer.

“Indeed, the biggest concern in Dubai real estate has switched from who is going to buy more off-plan to who is actually going to live in all these projects that are to be ready for handover in the coming three years,” said Al Msaddi. “The challenge here is not only about who is going to live there and the hundreds of millions worth of inventory that is frozen for developers.

“But it also means the high operational costs for the upkeep of this (unsold) inventory, such as DEWA charges, air-conditioning, cleaning, landscaping, security, and maintenance of swimming pools, tennis courts and other facilities.”

Developers clearly have taken note … even at Cityscape most developers were intent on talking up the prospects of their projects nearing completion rather than the merits of those to be delivered in three and more years. The market has shifted to a “now is good” mentality, with buyers showing a clear preference for ready homes.

According to the latest GCP-Reidin Dubai transactions data, demand for ready units is down by less than 10 per cent on a year-on-year basis. And the chances are that before the year is out, that gap could be reduced further.

But no such hope exists for offplan sales, which are down by more than 30 per cent year-on-year. Only three launches were standouts so far this year — the Emaar Beachfront in Jumeirah, the multi high-rise Se7en City in JLT (Jumeirah Lake Towers) and Danube’s Lawnz in International City. (In Sharjah, offplan demand is still on a high, with Arada confirming it netted Dh545 million worth of sales by selling 652 homes during Cityscape.) Most market sources reckon that about 15,000-20,000 new homes will be delivered in Dubai this year, slightly above the numbers delivered in the last three. (Only one or two consultancies believe it would exceed well over the 20,000 unit mark.) Developers will also have to keep a close watch on the steady rise in mortgage rates. The US Federal Reserve has been consistent in indicating there will be multiple rises in its base rates over the next 12 months, which will immediately be mirrored in local lending. In a still weak property buying market, higher payouts on mortgages could be a burden for buyers.

But there is another factor in play when it comes to paying higher mortgages on offplan and where the delivery of the homes are still some way off. There is only so much developers can do to stretch the payment schedules at a time when mortgages rates are rising.

Instead, more potential buyers buying on mortgage would prefer buying a ready home and then paying off the mortgages on it, through their income or by renting it out.

Another solution could be to increase the loan-to-value (LTV) ratio again, so that buyers who cannot afford the upfront payment when it is at 30 per cent of the property value can manage when it’s at 15-20 per cent,” said Al Msaddi. “The Government is creating and regulating new instruments to help developers tap into a new tenancy stream — targeting institutional investors and REITs (real estate investment trusts), or through rent-to-own schemes, holiday homes and short-term furnished homes.”


Try and sell at launch or when ready?

Developers are gradually shifting their sales launches to projects when they are complete and ready for the moving in. Will it mean more will start following the same course?

“I think it is more about not launching new projects that rely on off-plan sales to fund construction,” said Firas Al Msaddi of fam. “The margin is very thin and for developers to make profit, they have to sell off-plan. But the reality of the market gives developers no option other than to hold back for now — and that can mean the death of their business. Or they have to secure some sort of funding and develop to sell around completion. Or even rent out until the market improves.”