Dubai Property Market: Backloaded schemes

Dubai property marketGlitz by Danube in Dubai Studio City will be ready in 2017 l Image Credit: Courtesy of Danube

While the recent stabilisation of residential prices in Dubai property market has encouraged home ownership, some developers are taking a more aggressive approach to encourage a much broader cross-section of the population into the freehold market. Their efforts are particularly focused on mid-income households, mainly because of the relatively slow uptake in an otherwise substantial market.

Buyer-friendly post-handover payment plans is one initiative by some developers that is gaining traction, with projects such as Safeer Tower 1 in Business Bay, Glitz by Danube in Dubai Studio City and Ggico Properties’ Grand Horizon Apartments in Dubai Sports City (DSC) finding enough takers from mid-income households.

“The majority of [buyers] come under the mid-income segment. And so far they have not yet taken a reasonable share in the current market,” says Harish Kathuria, Group Director of Finance at Al Safeer Group.

“It is high time that developers should target this segment. With the market relatively stable and expected to continue in this mode this year, it is an excellent time to buy as developers are offering good prices and attractive payment plans.”

Danube Properties is another proponent of backloaded payment schemes, which the company claims will encourage more residents to buy property rather than pay rent. The developer says it will build three to four midsize projects each year in different areas of Dubai, giving homebuyers more choices in location and payment plan.

“All these projects will carry very good payment terms and will be attractively priced,” says Rizwan Sajan, Founder and Chairman of Danube Group. “I believe there is latent demand from [mid-income] end users and [with] the trust and credibility of more than 22 years behind us, I am confident to be able to deliver affordable living to these consumers.”

Marco Bonini, Head of Sales and Marketing at Ggico Properties, says a post-handover payment plan gives end users a more economical way of paying off a property, albeit over a shorter period than a mortgage.

For investors, the payment scheme offers an opportunity to buy more units and spread their capital outlay over a multiyear period with no risk of interest rates going up.

Niraj Masand, Managing Director of Banke International Properties Dubai, says confidence, rather than liquidity, has been the issue.

“[This] is now being restored with the correction in prices. Realistic values are now being quoted by sellers, which is bringing back some momentum into the market.

“Buyers are looking at realistic values, and while some developers might not be in a position to reduce prices due to the overall cost of construction, they are incentivising buyers with post-handover payment plans. This allows buyers the ease of buying property without having to stretch their line of credit with the banks.”

Mario Volpi, Managing Director of Ocean View Real Estate, says buyers are now more price-sensitive and looking for property they perceive to be of good value. “We [started] experiencing a shift in the market from the first half of last year. This period of stability is bringing about a reduction in prices as sellers jockey for position to attract buyers. Post-handover payment plans are designed to catch the investor or buyer at the off-plan stage. The developers need to convince the buyers that they will complete the project.”

Healthy demand

Although there has been a healthy demand from homebuyers, most are in a wait-and-watch mode. “As further correction is expected, more homeowners [could] enter by the end of the year,” says Simon Gray, Managing Director of Chestertons Middle East and North Africa.

Easy post-handover payment plans are new in Dubai’s off-plan market, points out Gray. “It makes the deal more attractive as buyers can then pay after the property has been completed and, therefore, the risk of loss in case of delays reduces.”

Al Safeer Group, engaged primarily in mall development in the UAE, Oman and Qatar, has made its maiden entry into Dubai’s residential property market. The developer says it completed 40 per cent of its Safeer Tower 1 project in Business Bay before selling one- and two-bedroom apartments with “attractive and affordable” payment plans. The strategy has worked with most of the units sold despite this being the firm’s first project.

Prices start from Dh700,000 for studios and around Dh1.4 million for one-bedroom apartments. An initial 10 per cent is required for down payment, followed by 10 per cent after 90 days and 20 per cent on handover. The final 60 per cent is payable over three years from handover. However, for studios, 80 per cent of the price is required on handover.

There is also a rental income guarantee to investors, reducing the monthly instalment to Dh15,000 for a one-bedroom apartment. The company says the property expects a return on investment (ROI) of 5-8 per cent. Prices, from Dh1,390 to Dh1,650 per square foot, are standard for Business Bay.

“From a buyer’s point of view, apart from the payment plan, location, affordability of a luxury apartment, quality, price and rental guarantee are the other main considerations,” says Kathuria. “Particularly, the three-year rental guarantee is attracting more investors. This offer is optional and is mainly for non-residents.

“The majority of our buyers are from other GCC countries and the UK. By giving them rent assurance, we are giving additional benefit to buy property.”

Safeer Tower 1 is around 60 per cent complete and will be ready for handover by the end of the year.

“We are more comfortable in this market, where only developers that have done their homework on financials can remain in the market for the long term,” says Kathuria. He adds that speculation, rampant in previous years, has been controlled to a great extent.

“Although the Dubai Land Department [DLD] has increased the registration fees, the current control measures have given investors more security since all projects are first registered at the DLD and payments are deposited in escrow accounts instead of developers’ accounts.

“Off-plan projects do not get more than 50 per cent mortgage finance, which has forced buyers to put in more equity. However, we feel this should be reconsidered for first-time buyers.”

Glitz by Danube

Danube Properties is offering a different payment scheme for Glitz, which requires a 25 per cent down payment and the balance to be paid in 75 instalments of 1 per cent each.

“There is a large population that has lived here for more than a decade and Dubai is more than a home to them. The payment plan makes it possible for such people to own property with financial ease,” says Sajan.

Danube’s maiden project, Dreamz, is a villa development that the developer says is hugely successful. Glitz, which will be built in 30 months and handed over by July 2017, is following suit after it was sold out upon its launch.

“We offered an attractive product at the right price, with a convenient payment received. We remain focused on every element that has an impact from an end user’s point of view.”

The payment scheme allows end users to move into their homes without having to pay the full amount and still have four years to pay the balance in equal instalments. For investors, the ROI is lucrative because the scheme allows them to start renting out the property while still paying the balance.

Grand Horizon

Ggico’s Grand Horizon Apartments comprises one-bedroom apartments with plan,” says Sajan. “It was well prices ranging from just less than Dh800,000 to a little more than Dh1 million and sizes between 826 sq ft and 1,149 sq ft.

The developer says the project’s potential net return ranges from 6-9 per cent. “This is being realistic and in line with other properties we manage in the area,” says Bonini.

“The demand for rental property in DSC is growing and, contrary to reports suggesting that rents are decreasing in many areas, we are seeing strong demand and a healthy growth within the Ggico Proper-ties portfolio.” For investors, DSC has been getting strong rental returns for some time, averaging 8.45 per cent, according to a Cityscape report published in December.

“There is a change in the dynamics. We are seeing an increase from end users, but there is still strong demand from investors and we aim to target both groups,” explains Bonini.

This is evident from the positive response during the project’s launch last month. “In two weeks, we sold in excess of 90 per cent [of all units].”

Grand Horizon Apartments, which is expected to be completed in April, requires a 10 per cent down payment and 20 per cent to be paid before completion.

The remaining 70 per cent is payable within three years after completion without interest, working out at around 2 per cent per month. Driven by the success of the backloaded scheme, Bonini says Ggico Properties will launch more projects in the emirate this year.

“We are confident that the demand for high-quality, mid-market property is still strong and growing both from end user and investor points of view,” he adds.

“While there might be a slight slowdown at the top end, there is no panic and in fact most owners who [are unable to] sell at the price they want are holding [their units] until the market demonstrates an increase in demand.

See more of Dubai property market trends.

Source: N.P. Krishna Kumar, Special to Property Weekly


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