Dubai realty’s secondary market caught in a bind

Dubai realtyA view of Downtown Dubai from the Burj Khalifa. Developers, especially big ones, have been quick to adjust their launch prices to be in step with investor sentiments in a soft marketplace l Image Credit: Sankha Kar/Gulf News Archives

Dubai: Dubai’s real estate market is starting to feel the heat ... and it’s got nothing to do with the summer.

Secondary market sales of ready properties have been on a steep decline in the year-to-date as property buyers took their pick from the flood of off-plan launches that took place simultaneously. And not just that off-plan prices have started to get quite competitive vis-a-vis those tagged to properties in the secondary market.

“Master-developers have had multiple launches within the same cluster in the last three quarters, but some of the recent ones have been at prices below what they were charging in the fourth quarter of 2014,” said Sameer Lakhani, Managing Director at Global Capital Partners. “This trend has been noticeable even at some of the most prestigious locations — a launch late last year in Downtown was at Dh2,100 a square foot. The most recent one at the same location from the same developer was for around Dh1,800.

“The trend of prices drifting lower may finally trigger the beginning of the shift of the market from being investor-driven (70-75 per cent of overall purchases) to that of an end-user one. This will signal happy tidings for end users as it allows them to consider purchasing homes at more affordable rates.”

Clearly, developers, especially the big ones, have been quick to adjust their launch prices to be in step with investor sentiments in a soft marketplace. Meanwhile, another set of developers, such as Nshama and MAG Properties, have come in with off-plans targeted at a more budget-conscious buyer.

What all of this has led to is catch the secondary market in a vice-like grip. Much of the liquidity has been sucked up by the off-plan leaving little for the secondary. In the last three years, an estimated 75,000-100,000 units have been added to the supply via off-plan releases. The second-half of the year looks certain to be just as active, as developers with off-plan forays will try and leverage their current advantage vis-a-vis secondary market.

Shift in preferences

Also, secondary market values suddenly find themselves as being pricier than the recent off-plan releases. In fact some would suggest that secondary values are still seen as too close to the first quarter of 2014 highs. The subsequent corrections have not gone deep enough.

In such an environment, investors have been quick to shift their preferences to where they see value, even within the high-end property space. (In fact, some investors holding secondary property and looking to exit have had to “top up” their interiors and throw in a few bespoke extras to find investors willing to buy off them. Others have had to exit at a discount to what they had originally paid. That would be the biggest worry for investors if this were to happen more frequently.)

“Secondary market activity can only pick up if asking prices were to drop below — or at best be on par with — off-plan options,” said an investor. “Even with the 4 per cent Oqood charges — that comes with any off-plan purchase — buying off-plan now is more competitive than in secondary.”

So far, secondary market buyers have not started unilaterally dumping prices to find a quick exit. That is a huge relief for the overall market’s long-term health. But investors are starting to fret.

But market sources suggest that the time may have come for real estate authorities to consider revising some of the charges that come with a transaction. This includes the 4 per cent registration charge (which was doubled in the fourth quarter of 2013). And hopefully have the banks become slightly more generous with their mortgage disbursals.

But some are unsure whether cutting down on transaction charges is the right step — “Such a move does seems unlikely as transaction charges in Dubai still compare favourably to that in developed markets.”

Source: Manoj Nair, Associate Editor, gulfnews.comGN


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