Dubai: Giving private developers more flexibility on launches could be one way to cool down any future oversupply in Dubai’s property market.
Currently, there are specific requirements whereby developers who have paid off for the land are expected to launch projects on it within a certain timeframe. If developers fail to launch within these time limits, they are liable for penalties, and quite heavy ones at that.
“This could be anywhere from one to two years in an already established community, or up to five years for those communities lying on the city’s outskirts,” said Faisal Al Msaddi, CEO of fam Properties. “If the timeframe is extended, there will be less pressure on developers to launch immediately.
“They could do so when the market is more favourable from a demand perspective. It’s something the authorities could look into.”
Reasons for the defined timeframe
In the past, there were several instances when small developers/private investors would acquire land and - despite their commitments - would not go ahead with the launch. For them, acquiring the land was all about trying to sell it at a later stage the moment they got a favourable deal. The intent to buy was sorely lacking. In most cases, the original buyers would not have paid off for the land in full.
It was to prevent such land deals that Dubai’s authorities stepped in and set well-defined time limits between the land purchase and launch of a project on it. Plus, the cost of land had to be paid up in full.
But now, the Dubai property market is facing concerns related to oversupply. In each of the last two years, significant new supply of new homes has been achieved, and this year’s final tally is likely to be even higher.
This would be one of the issues the newly set up committee on real estate would be investigating. The committee, whose formation was announced Monday, has members from all the leading government owned developers - Emaar, Nakheel, Meraas, Meydan, wasl, DMCC, etc. - private developer, with Nshama (the name behind the Town Square community), and government entities such as General Secretariat of the Executive Council of Dubai and Land Department.
It will be chaired by Shaikh Maktoum bin Mohammad bin Rashid Al Maktoum, Deputy Ruler of Dubai and First Deputy Chairman of Dubai Executive Council.
“There’s a lot of excitement in the marketplace on how the future supply and demand issues will be addressed by Dubai and the new committee,” said Al Msaddi. “If certain categories of development are stopped or reduced, it does not mean the entire real estate sector is coming to a standstill.
“Balancing supply and demand - that will define the market in the immediate future.”
The newly constituted “Higher Committee for Real Estate Planning” does have a clear mandate on what it will be doing. It will “study the needs of the market, evaluate all future projects, develop an integrated plan for the real estate sector to regulate and control the pace of projects, and achieve a balance between supply and demand,” a statement issued by the Media Office of Dubai Government said. “It will also direct real estate entities to develop new innovative projects focused on quality rather than quantity.”
Market sources say that what’s interesting is that the Committee is not just going to look at the short-term needs, but spell out priorities for the real estate over the next 10 years.
In a statement, Sultan Butti bin Mejren, Director-General at Dubai Land Department, said the move will give a “strategic dimension to the economy”.
“Land Department will contribute in making the work of the new Committee as easy as possible by providing all information and support to the members.”
State of the market
Property values in Dubai are still under pressure, though recent weeks have seen some deals closing higher than the properties’ listing prices in January.
According to Faisal Al Msaddi of fam Properties, “The fourth quarter of last year was the worst, at least in my experience. But since then, each quarter continues to get better, though prices are very much on the softer side. But there is no free fall, no crash.
“At the end of the day, Dubai’s property market is not a $1 trillion play - even in downturns, a few developers and investors can still carry the market.”