Dubai: Dubai’s real estate market is getting set for the “ready” wave — and it will have a telling impact on the city’s residential rents and even on how developers price their off-plan launches.
Between 15,000 to 20,000 new homes will get delivered in Dubai this year, and in locations such as Al Furjan, Jumeirah Village Circle and Sports City, the new additions are being backed up by some eye-catching incentives.
At Al Furjan, for instance, Nakheel is offering a flat 5 per cent downpayment and which allows the owner to move in immediately. So, no waiting around to take possession.
And the rest of the payments can be made over five years for the townhouses and seven on the villas. Nakheel has to date handed over 1,130 units out of 1,234 in total at Al Furjan.
In Jumeirah Village Circle, private developers are lining up 5-10 per cent downpayment schemes and the rest to be paid in five years. Ditto at the Sports City.
Now what does this mean for the wider property market dynamics? Ready property purchases tend to be dominated by end-users, and who are then likely to move into their own homes rather than rent it out.
This is exactly what is happening at these emerging residential areas of the city, and, to an extent, even in Business Bay.
And that adds to the pressures on the rest of the rental marketplace.
Rents in Sports City and JVC are down by 10-15 per cent on average since early 2017. A three-bedroom unit at both locations are in the range of Dh90,000-Dh100,000 a year. Each new property that gets added to these places keeps rental demands in check.
“Rents are falling across the board and that is due to a number of reasons, one of them being the fact there are now generous incentives given on ready properties,” said Sameer Lakhani, Managing Director at Global Capital Partners.
“That has the impact of certain communities falling more than others in rents. But these are the communities that end-users find to be substitutes.
“Clearly, this is a trend that will accelerate for all kinds of reasons.”
That could also prompt more residents to make the switch to buying for their own use rather than remain as tenants. End-users — that’s what this market needs to see a lot more of, as Dubai’s developers and the authorities know only too well.
According to Cluttons, the consultancy, this sentiment seems to be percolating down. Properties valued at Dh1.5 million and with mortgages on them are becoming a regular feature in transactions, alongside the multi-million dirham luxury homes Dubai is known for.
“At this price point (of Dh1.5 million), one- and two-bedroom apartments in an established area are dominating most of the activity in the market,” said Richard Paul, Head of Professional Services for Cluttons M. E., in a recent statement. “This is also the case for prospective owner-occupiers who wish to cease paying rent.
“If they have adequate equity, it makes sense for them to contemplate paying off their own mortgage and look at real estate as a mid- and long-term investment.”
Developers with off-plan projects also need to watch the ready space.
Because whatever incentive they can come up with, it can prove difficult to compete with someone offering a modest downpayment scheme on a ready-to-move into home.
And it’s actually happening. “In areas where smaller developers are present in large numbers, they are offering discounts on off-plan in excess of 20 per cent over the prevailing value,” said Lakhani.
“These include areas such as JVC, Sports City and Dubai Residential Complex in the mid-income space, and even at some of the Meydan projects and Dubai Hills in the upper income space.”
Market is cooling off on off-plan incentives
Five years? Ten?
Last year’s off-plan sales sizzle was built on extended post-handover plans. Take possession and pay the rest over five to 10 years, that was how developers were catching the buyer’s eye.
But the charm seems to be wearing off on such schemes. “Among the smaller developers in particular, there has reached a point whereby off-plan incentives simply are not feasible anymore,” said Sameer Lakhani at Global Capital Partners.
“It is here that we are seeing lower prices being offered in lieu of extended payment plans, so that it attracts the price-conscious buyer.”