Developers in Dubai have devised multiple ways to buy new land - and still keep their costs in check. But it has reached saturation point as offplan launches rev up. Image Credit: Dubai Media office

Dubai: These days, it’s relatively easier to sell an offplan property in Dubai than to find land to build them – that’s according to a leading developer of mid- to high-end projects.

“Unless there’s a release of new areas for development, it’s getting to a situation where developers have to pay a steep premium to buy land – and that too mostly in the secondary market,” said Vijay Doshi, Chairman and Managing Director of Vincitore Real Estate Development.

“Property value gains in Dubai over 2-3 years would have been around 30-35 per cent. But with land prices, what we are seeing now is a doubling from levels in 2019-20.

“And land costs typically make up around 20 per cent of an overall project cost. When land values shoot up like this, developers do face the brunt. This is why all developers could do with release of more land and probably cool prices a bit.

“The moment fresh plots are released anywhere, developers and investors will pounce to grab what’s available.”

A dh300 million land deal
In November, a three-way tie up put together a land deal in Dubai valued at Dh300 million plus, and one of the biggest to date at Jumeirah Golf Estates. The partners were AveNew by RH, Pride and Property and Landsmith Real Estate.

Jumeirah Golf Estates is among the world’s top golf focused communities with over 1,500 homess. The transacted land ‘overlooks an expansive view of the Fairways’.

“The scarcity of available golf course real estate contributes significantly to the premium placed on these sought-after developments,” said a statement.

Metro areas feel land price pressure

In recent weeks, there have been further mark ups in plot values for freehold projects, especially at locations near Dubai Metro’s new expansion networks. Another location seeing a significant gain is Dubai Hills’ plot values, ‘especially after the Mall opened there’, said Doshi. “Not just that, neighbouring freehold communities too have felt the price pull.”

Other developer sources have confirmed that they are indeed paying top dollar for any land buys these make these days. The lucky ones are those utilizing the land they bought pre-2021-22 for their new offplan launches. More so, as banks are increasingly reluctant to fund plot purchases by developers, sources add.

"Land value in Dubai have at a minimum doubled, and in few locations it is 300% higher such as on villa plots, low FAR (floor area ratio) building plots." - Vijay Doshi of Vincitore. Image Credit: Ahmed Ramzan/Gulf News

Another way to mitigate costs is when a developer ties up with another who has the land in a partnership and then launch a project. And work out a profit sharing deal based around that. There have been a few of such arrangements in the Dubai real estate space already.

Build on one’s own

This is not a route Doshi wants to take. “I would rather buy land and launch on my own,” he added. “This way we retain control through the entire development cycle.”

Vincitore, which has multiple completed ongoing projects in Dubai, will keep ‘absorbing’ as much of the land cost inflation where possible than pass it on through higher sales value, Doshi added.

“Our projects are in Arjan, where the land value 2 years ago was Dh80-Dh100 a square foot of GFA (gross floor area). As of end November 2023, these are in the range of Dh250-Dh300, depending on plot size and project specifications.

“I don’t think developers can afford to pass on the full price inflation – there are so many factors they will need to look into.

“There’s nothing worse than getting sale prices wrong at launch. Instead, developers are better off treading a fine line with land cost.”

Until new land is released…

Will offplan property prices stabilise?
According to a new Reidin-GCP report, plot sales in Dubai have accounted for around a third of city-wide property sales values since 2021 - this, despite making up ‘far less than a third of sales volumes’.
“This supports our hypothesis that offplan prices will revert downwards as the Dubai property market receives an influx of supply,” according to the report.