In his Letter of the New Season, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, outlined six main objectives for the coming period, among which was a call for real estate projects to “adjust their pace” and provide added value to the national economy. The letter addressed to the nation said, “Real estate projects need to be revamped to bring added value to the national economy and so as to not to become a burden and a source of imbalance in our economic process.”
One of the major factors contributing to the decline in real estate rents and prices in Dubai over the past few years has been the excess levels of new supply to the market. Following close to the Letter of the New Season, a higher committee for Dubai’s real estate planning was launched by the government to enable a healthier balance between supply and demand. It is being headed by Sheikh Maktoum Bin Mohammed, Deputy Ruler of Dubai, and senior property developers who have been tasked with introducing measures to improve the balance between supply and demand and ensure that semi-government real estate companies do not compete so directly with private investors.
As part of this mandate, the committee will develop a comprehensive strategic vision for all major real estate projects for the next ten years.
Thierry Delvaux, CEO of JLL Mena, sees this initiative as a welcome news for Dubai’s real estate industry. “It’s a positive step towards achieving a more balanced market for the emirate,” said Delvaux. “High levels of recent supply are being felt across both the commercial and residential sectors and while not all proposed projects will complete on schedule, we do expect to see a significant spike in project completions across the residential and commercial sectors over the remainder of 2019.”
The average level of residential completions in Dubai over the past three years has been around 20,000 dwellings per year, while as many as 60,000 are scheduled for completion this year alone according to JLL. A similar increase in new supply is also being witnessed in the retail sector where completions this year could exceed 600,000 sq m, compared to an annual average of 233,000 sq m over the past three years.
“The extent to which this new committee can regulate and achieve an improved balance of supply and demand remains to be seen, but recognition of the current imbalance and the implementation of a plan to counteract this problem are key steps towards making a change,” said Delvaux. “The ‘build it and they will come’ model has served Dubai well in the past, but now is the time to be reviewing this approach and create a more balanced market.”
Need for sustainability
Mahmoud AlBurai, vice-president of International Real Estate Federation of Arab Countries, said sustainability in the real estate sector requires a balance in supply and demand. “As Dubai is becoming more affordable, supply continues to be the issue,” said AlBurai. “The government now needs a medium to long-term master plan with an objective of making the city economically, socially and environmentally sustainable. Such master plan will give developers and investors certainty on the future if coupled with better transparency about market performance — supply, demand, prices and rent.”
There is need to look at the current stock and what’s in the pipeline in the coming few years and plan backwards, said AlBurai. “The focus should be on completing projects that are on hold rather than overbuilding,” he adds. “This will give investors more confidence.”
There should also be a better land allocation system to make the market more stable. “Singapore has good structure in place where the Urban Redevelopment Authority handles land for development and developers offer their proposals,” said Al Burai. “And only the best projects and developers are selected. If there is a shortage in housing, the URA releases more land. If there is oversupply, they will delay allocating new land.”
Guidelines to control supply
Kalpesh Sampat, COO of SPF Realty Real Estate, agrees that once guidelines to control supply comes into effect, it will usher in a positive sentiment. “Projects should only be approved when a developer can demonstrate that he is delivering on schedule and as per the finishing and standards specified in the SPA,” said Sampat. “Moreover, in case of delays over 12 or a maximum of 18 months in delivery, the purchaser should be given the option to cancel and get a 100 per cent refund on the investment.” Sampat also feels that marketing and sales of off-plan projects should be significantly reduced and all post-handover plans should be stopped. “Developers need to enhance the quality of the product they are delivering. It should exceed the expectation or standard defined in the SPA. Real estate is a long-term game. If you want to be successful in the long term, the only strategy that would work is one which satisfies and indeed delights a customer.”
Need for transperancy
The new initiative will ensure that the competition is fair and there is transparency, believes Firas Al Msaddi, CEO of Fam Properties. “Every developer should focus on a project that is not a duplication of an existing project. It is important to differentiate in this market. City Walk, forexample, is the only low-rise, modern residential project that offers the component of retail and tourist attraction in one,” said Al Msaddi. “That’s the reason prices have fluctuated here the least. Also quality controlling, value to the end user and pricing are all important factors developers need to keep in mind.”
Quality over quantity
Finally, it is quality over quantity that realty stakeholders really want. As Saleem Karsaz, CEO of Aeon and Trisil Real Estate, said, “Developers should launch less projects but of more value for the end users and investors. This will help to control the demand-supply gap and help the economy in the longer run.”
— Additional reporting by Hina Navin