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When Dubai house prices fall, it follows that excellent buying options emerge for investors and end users, especially those who passed up opportunities during the previous correction. However, despite weakening values, industry insiders say many property buyers are now taking a much longer time to decide on a deal.
“Customarily, we would hope to complete a transaction within two to three months of the initial enquiry from a buyer, but now we see this period is expanding to around five to six months, as buyers want to wait and hold to observe any signs of market changes,” says Ashraf Khan, Sales Manager at Exclusive Links Real Estate.
Despite several good entry points in the market, the number of transactions has gone down. “Most sellers are holding on to their prices, so the number of transactions has reduced,” explains Kalpesh Sampat, Director at SPF Realty. Nonetheless, Sampat agrees buyers are gaining the upper hand. “It has been a buyer’s market for the past six to eight months.
“However, buyers are being more selective and negotiating more knowing it is a relatively slow market. Some sellers have reduced prices by 5-10 per cent, while most buyers are looking for a [better] deal or 15-25 per cent below current prices, which are already much lower than 2014 peaks.”
The market has witnessed a gradual decline in property prices over the past three quarters and this trend is expected to continue for the rest of this year, further reinforcing a buyer’s market. Khan says there are positive takeaways from the recent correction, saying the price escalation of 2013 was not realistic or sustainable.
He adds that a price correction signifies a buyer’s market, which is ultimately healthy for the real estate industry as affordability plays an important factor and potential rental yields and capital appreciation can be reduced.
The current price adjustment has affected the resale market more than the off-plan market. The secondary market has incurred a price correction of 5-10 per cent in locations such as Downtown Dubai and the Palm Jumeirah, whereas property in Dubai Marina and Jumeirah Lakes Towers saw a 10-15 per cent reduction over the past six months, points out Khan.
With softening prices, realty investors have become extra cautious. Buyers are now spending twice the amount of time (up to six months) to select property from the secondary market.
“There are investors in the market who are still on standby, as they continue to assess and await further price markdowns, with the hope to obtain the best deal at the lowest price,” says Khan. “End users previously priced out of the market are now supported by the correction, resulting in continued transactions.”
As the market has not encountered any significant impact over the past six months, many buyers are hesitant to enter. “Mostly, middle-income end users are more indefinite and take a longer time to finalise a purchase,” says Khan.
Mario Volpi, Head of Sales at Asteco, says that despite prevailing market conditions, it’s business as usual for most market players.
“Memoranda of understanding are still dated for transfer about 30 days from signing for cash deals and 45-60 days for financed purchases.”
However, he agrees that in the current market scenario, buyers have become slow in proceeding with a property purchase. “Buyers [wait for] prices to fall further and this element of uncertainty in the market is the main reason that makes [them] delay their decision.”
Khan expects the trend to change soon when buyers see a reduction in supply or an upward price movement, which will lead to a flurry of new transactions.
“When the market is on an incline it incurs frantic purchasing, as buyers fear they will be priced out or forced to consider downsizing from their initial goals,” he says. “We’ve found it is of- ten a case of buyer expectations no longer being achievable, as they have waited on the sidelines for too long.”
Sampat sees a behavior shift in buyers, as they are being more selective, viewing around 25-30 properties before making a final decision, as opposed to 10-15 options in the past. He’s also noticed buyers are now becoming aggressive in negotiating the price and more fastidious about location, which lengthens the buying process.
However, Sampat cautions buyers, especially end users, not to wait for prices to bottom out, which would be difficult to predict. “Indeed, if you are buying with a mid- to long-term perspective, these are compelling price points and you will be very happy you made the decision now rather than a year ago, or wait until 2016.”
Industry insiders also believe the growth of the off-plan market, along with flexible and attractive payment plans, is another major reason for the slowdown in the secondary market. Khan says the majority of off-plan projects launched over the past couple of years have been selling very well.
“With the maturity of the market, combined with government initiatives, there are more long-term investors,” he says.
“And there are incentives to purchase off-plan, such as prices that are 20-30 per cent less than comparable completed properties and there are more attractive payment plans over the period of construction. When new and exciting products are released, it gives buyers a realistic chance to purchase more affordable property, realise their dream home or a strong investment opportunity.
“Provided developers are still launching good off-plan products, developments are completed and there is continued interest and demand from investors, a short period of slowdown with narrow price decline is nothing to worry about. There is substantial confidence in the market and positive signs.”
Source: Hina Navin, Special to Property Weekly