Developers stuck in slow mode
ONLY 6,000 NEW HOMES COMPLETED IN FIRST FIVE MONTHS AMID WEAK DEMAND
Developers in Dubai are in no rush … to finish their projects and hand over the new homes. In the first five months, just over 6,000 new units were ready and it looks like the full year will see about 21,500 units being delivered |
Developers in Dubai are in no rush … to finish their projects and hand over the new homes. In the first five months, just over 6,000 new units were ready and it looks like the full year will see about 21,500 units being delivered, according to the projections by the consultancy Core Savills.
That is quite a gap from the 41,000 new homes developers had promised at the start of this year. And can only mean that expectations of the more than 80,000 units being ready over the next two to three years could be a mirage.
But developers have reasons to take it relatively slow on handovers — the new supply is only adding to the pressure on property values. “Multiple phase deliveries — such as [at] Mira, Mudon and Arabian Ranches — have cast a significant downward pressure on The Springs and The Meadows’ sales market,” the report notes.
And as Edward Macura, Partner at Core Savills, says: “The cascading effect of new stock impacting secondary sales prices, either within the community or in the adjoining areas, is one of the strongest reasons causing a delay in sales price recovery.”
The same holds true for most of Dubai’s freehold communities, and more so at its older clusters. The four weakest performing apartment areas were Downtown Dubai, Dubai Marina, Emirates Living and Jumeirah Lake Towers, according to the report.
New launches
“Downtown Dubai and Dubai Marina saw the sharpest yearon-year declines at 7.5 and 6.6 per cent, respectively, resulting from the large number of new launches within these areas, which shifted demand from ready built to off-plan stock,” the report adds. “Certain new developments in Downtown were launched at notably lower prices even in the context of off-plan units, indicating that developers are significantly undercutting the captive secondary sales market.”
Dubailand was the only exception to the general air of decline, with apartment prices there actually inching up 2.7 per cent from a year ago position. Some developments within that vast expanse, such as Dubai Sports City, continue to do reasonably well as new buildings get completed there.
Dubailand’s price gain “anomaly is due to the fact that most new sales activity is concentrated within this area with lower entry prices driving sales,” Core Savills reports. “However, many launches are in fact at a higher price per square foot — keeping the area averages steady.”
Significant interest
What has definitely not been happening so far this year is sufficient demand for off-plan launches. Only a handful of developers, among them being Emaar and Nshama, managed to pull in significant interest for their latest offerings.
All of which is so different from the situation last year, when off-plan sales were 23 per cent higher than both ready and mortgage sales combined.
Would the weak demand for off-plan be compensated by a spike for ready properties? “Despite overall sales price declines, average ready sales unit value has been increasing over the last year,” according to Core Savills. This indicates an “occupier preference for higher quality unit for immediate occupation.
“In contrast, the average offplan unit price has consistently dropped over the last three years”, as developers’ only tool to compete has been by “lowering entry prices rather than other adjusting other market factors.
“As more units become available, this trend could impact the overall rental market recovery and in turn lead to contracting yields and higher vacancy levels, potentially reducing investor demand in the short to mid- term.”