Dubai: Developers in Dubai are cutting down further on the down payment requirements to book a property, even bringing down to 5 per cent and below from 10-15 per cent earlier. Doing so, they are putting themselves at severe risk that these buyers will not stay the distance and meet all future payments over the next five to 10 years.
Property prices in Dubai are sticking to their pre-COVID-19 levels, at least for now. Developers have resisted the temptation to slash offplan rates, but are instead lowering the down payment requirements. (They had already stretched post-handover payment plans to the limit.)
“Some developers are already making it too easy to buy by asking for a 5 per cent down payment… even less,” said Farhad Azizi, CEO of Azizi Developments. “But it’s like setting a trap – for themselves in the long term.
“These deals will only bring back speculation, and we all know how badly that ended during 2008. No property market can afford to see that happen again.
“I think all developers would rather have a serious customer who can pay 15-20 per cent and have the financial capacity to complete the purchase. Selling at 1-2 per cent down payment will only make developers happy for a moment… not longer.
“These deals are most likely not going to bring in a “healthy” customer in all probability. There should not be another round of “speculation games”.”
Right through the last eight weeks, several developers ramped up their campaigns through emails and digital media to get potential buyers interested. Rental guarantee schemes are once again being highlighted by some – at a time when rents are coming under further pressure across the board.
Potential buyers, by and large, are not likely to make an immediate entry into the market, believing that if they hold out, rates and incentives could get better.
“Even now, there have been a lot of enquiries from international investors,” said Azizi. “But they remain as enquiries for now, whether they will convert or not is unclear.
“There are also a lot of units that were reserved but I haven’t seen the payments. These buyers are being too careful now, going over their financial positions and hoping developers will make more adjustments.
“During those two full weeks of a complete lockdown, we didn’t have any business. A lot of the bookings are not leading to realisations. For developers and buyers, it’s going to be a wait-and-watch.”
Developers, whether they are listed or private, have felt the full impact of the COVID-19 outbreak on their first and second quarter numbers. Sales have dropped to below 10 per cent of what used to be normal for them in a good month. (And yet, there are market reports that keep talking up sales numbers and even property price increases…)
Much depends on what’s coming
Market sources say that this year could eventually see around 35,000-40,000 units delivered in Dubai, from the 50,000 plus homes expected at the start of the year. Of course, offplan launches are markedly absent, and it’s highly unlikely any developer intends to rush in with a new launch. (Plus, if unsold inventory piles up for three years, developers are also liable for VAT.)
Azizi’s plans are to keep pressing forward with existing projects, and where possible bring forward their completion dates. Even gains of a few months will help.
During the lockdown phase, that’s exactly what the developer did. “We made requests for 24-hour work at the Riviera community project in Meydan,” the CEO said.
“From working 12-16 hours earlier, the additional hours mean we will be having earlier completions on the three phases that have seen work start. In fact, we had the highest percentage of progress on construction during lockdown.
“Dubai Municipality was issuing 24-hour permits and we were able to divert a lot of resources to work round-the-clock. With very little movement happening in the city, the authorities were OK with handing out these permits. Everything was done online, and most of the approvals were granted instantly.”
The Riviera will feature 74 mind-rise apartment buildings built over four phases. The other focus area for Azizi are its Al Furjan projects. The handover of its Palm project is now taking place.
Selling at 1-2 per cent down payment will only make developers happy for a moment… not longer
So far, developers have not reported facing major issues on scheduled payments from their offplan buyers. It has been a constant worry since the COVID-19 outbreak and which has disrupted the finances of many through a job loss or salary cuts.
“At our Palm project, where handovers are starting, we haven’t faced any issue from those who have already made 50 per cent or more on their installments,” said Azizi. “They remain adhesive to the payment schedules.
“But there are others who are asking for time – we remain supportive of their requests and trying to work out arrangements. But developers need to tread very carefully with payment holidays – they can easily upset their financial well-being.”