Palm Jumeirah back in the reckoning

Given the benefit of hindsight, the great property crash of 2008 may well have been the best thing that happened to Palm Jumeirah. Stretching the point a little further, we could say the same about waterfront communities – Jumeirah Islands springs to mind – that were completed before the market took  a dive last year. Why so?

It is borne of simple economics really – limited supply meeting limited demand. More precisely, existing developments will not have to compete with the many other waterfront projects that local developers announced during the boom phase of 2004 right up to the third quarter of 2008.

For instance, property values on the Palm Jumeirah do not run the risk of competitive pressures from the other two Palms – Jebel Ali and Deira. While Nakheel has not yet given any clear guidelines on what it intends to do with the two additional Palm developments,  it is safe to surmise that residential sales for these are not going to happen any time soon.

The nitpickers among us will point out that even without the prospect of competition, the present values on the Palm Jumeirah are nowhere near their peaks. But for Jesse Downs, director of research and advisory services at Landmark Advisory, that is precisely what the market needs now. As things stand, “prices seem to have stabilised in the villa segment, and you cannot get a Garden Home for Dh6.2 to Dh6.3 million anymore,” Downs says. “Relative to other projects in Dubai, there is still demand out there for villas on the Palm.”

And, thankfully, there are no more distress sales of Palm properties as had taken place in the first four months of the year, which contributed to a general ratcheting up of panic attacks among investors in Dubai’s real estate.

“For GCC buyers still expecting distress sales, they are just not available.” Downs adds. “It is an investment that is meant to be held long-term, maybe for five to seven years. A lot of the speculators have (now) transformed into investors on the Palm.”

This view is also shared by Laura Adams, manager for residential sales and leasing at Better Homes.

“Owners believe their properties are worth a lot more than what is being offered at the moment. They are withdrawing because they believe the buyers of today are mainly bargain hunters with cash,” she says.

According to data from Better Homes, Garden Homes on the Palm – if any are available in the secondary market – now have a minimum asking rate of Dh8.5 million, up from Dh6.5 million just three to four months ago (but down from the Dh11 to Dh12 million quoted at the peak). The Signature Villa values are also treading an upward path to hover around the Dh13 million mark after dipping to as low as Dh9 million earlier this year. But even here there is a fine line between what is rated a good buy and what is not. “Villas which have never been occupied are less desirable and less valuable, because most of them have not been snagged by the developer and are no longer under warranty,” cautions Adams.

The upbeat sentiments centred around the villas are not being shared by apartments. With a substantial capacity coming online, there is continued pressure on apartment values, and the quality of the build, as well as the location have become prime differentiators.

“The Golden Mile apartments are selling for Dh700/ft² (down from Dh1,500 during the peak), Shoreline Apartments are at Dh1,100 to Dh1,300 (from Dh1,550), and the high-end Tiara Residences cost Dh1,700 to Dh1,800,” says Downs.
“The let strategy (for apartments) is not very compelling right now,” which partially explains the tepid investor sentiment towards apartments.

Even then, homeowners on the Palm can still take a lot of positives into 2010, and topping this list will be the one related to sentiments.

Adams sums this up succinctly: “High-end properties always make a comeback, and the Palm will do the same. It is only a matter of time. There are people wanting to buy properties on the Palm right now because they see real value, but cannot due to a lack of financing. If they can afford to wait, then they should.”