Dubai realty market cool-off forces investor rethink

Dubai: Master-developers and those with proven track record of delivery will have the edge if investor sentiments in Dubai’s property markets were to tighten further, according to the findings of an industry survey complied by the law firm Hadef & Partners. This will force non-Tier A developers with having to “get more innovative and offering something more” to win over buyer confidence.

That could even mean sacrificing on their offer pricing. As high as 70 per cent of respondents in the survey believed that sub-developers need to come up with “better payment plans, lower prices and more balanced contracts” to get into their off-plan projects. This could have ramifications for the entire industry as a raft of new off-plan projects were launched by private developers recently, both in established locations and, more so these days, in newer locations further away from the city centre.

“There’s an undercurrent of caution, which could be eased if investors see the government sustaining the significant spending on wider infrastructure projects,” said Brent Baldwin, Partner at Hadef & Partners. “This will also be expressed by investors putting more faith in government-owned or backed developers.

“But there’s still substantial funding support for Dubai based offerings, as can be made out from the oversubscriptions for recent IPOs [initial public offerings].”

The current market situation could force more developers to begin off-plan launches at the earliest to mop up buyer interest at the earliest. This they can do by putting up bank guarantees in lieu of the 20 per cent project completion requirement they would otherwise have to do.

Even here, some of the respondents had reservations — “over 62 per cent believe that 20 per cent is not an adequate level of construction to permit a developer to launch sales of off-plan property, and over 50 per cent favour the developer personally financing 50 per cent or more of construction”, according to the survey.

Transactional activity cools off

But developers, surprisingly, had a different take. “Notably, a perhaps higher than anticipated 45 per cent of developers were of the view that the current 20 per cent collateral/construction requirement was about right”.

Also, as transactional activity cools off, new investors are likely to place their faith in existing properties than on off-plan, the survey finds. (But there are exceptions, going by market feedback to the recent off-plan launches of Dubai Creek Harbour at The Lagoons and the Anwa high-rise development at Maritime City.) “An overwhelming majority — 84 per cent — of respondents favour investing in completed real estate rather than off-plan”, the study finds. “And the comments made by respondents suggest their views have been formed against a background of failure by developers to perform and deliver in accordance with agreed contractual terms and time frames”.

The study was based on responses collated from industry stakeholders, with between 30-40 per cent weightage given to feedback from developers, another 30-40 per cent from investors/end-users. (But it was done before the recent round of turmoil in emerging markets, particularly Russia, and the heightened softness of oil prices.)

Source: Manoj Nair, Associate Editor, GN


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