Cityscape Global 2018: Off-plan launches take a back seat in Dubai

Dubai realtors manoeuvre current market slump with new offerings and innovative plans

As the Cityscape Global exhibition opens its doors today, the Dubai realty market is witnessing a shift in its sales pitch for what is turning out to be another challenging year. While developers relied on off-plan projects to boost sales in 2017, views collated by Thomson Reuters Projects show that this year, their focus is on clearing ready or unsold stocks first.

“The market is not dominated by off-plan sales, and in fact we have seen increased interest for ready units, due to their affordability and reduced risk of delayed handover, and we expect this trend to gain momentum going forward,” said Ivana Gazivoda Vucinic, head of consulting and valuations and advisory operations at Chestertons MENA in an email to Thomson Reuters Projects.

The latest data shared by real estate information firm REIDIN showed that around 12,000 new off-plan units were launched during the first nine months of 2018, against 25,000 units during the same period last year. Off-plan sales contribution to the total sales currently stands at 59 percent, down from 67 percent last year.

“The number of new launches has dropped this year as developers appear to have taken a strategic decision in a bid to stop units being vacant when completed and sales price decline,” said REIDIN research analyst Ali Siddiqui by email.

Many launches announced over the previous four-to-five years have begun to enter the market, which has created a situation of over-supply.

Dubai has already seen 14,000 new residential units being added to the market in the first eight months of the year, as 47 projects were completed, according to data released by Dubai Land Department.

These numbers will continue to grow, said global real estate consultant Colliers International MENA, as around 25,000 units and 31,000 units are expected to enter Dubai’s residential sector by the end of 2018 and 2019 respectively.

“Significant supply along with a weakening in economic performance will certainly lead to downward pressures, and in particular the rental market,” said Imran Hussain, director and head of residential valuations at Colliers International MENA in an email interview with Thomson Reuters Projects.

Price fall continues

Rising supply, coupled with subdued economic activity, has had an adverse effect on Dubai’s property market. This resulted in residential sale prices falling by four percent, in line with the villa and apartment rental rates that declined by three percent and two percent, respectively, in the third quarter of this year, against the same period last year, according to the latest report released by property consultancy Asteco.

Whereas, the office sector in Dubai recorded a fall of five percent in rental rates on a quarter-to-quarter basis in the third quarter, as new supply continued to put pressure on pricing.

Dubai’s office stock stood at 9.21 million square metres of gross leasable area (GLA) in the first half of 2018, registering a 14 percent rise from levels recorded during the same period in 2014, according to global real estate consultancy firm CBRE.

“Recent completions in the market further highlight the increased focus on Grade A office space – a trend which is likely to continue with the expected delivery of 1.1 million sqm of new GLA between third quarter 2018 and 2020,” said Dima Isshak, a manager in CBRE Middle East’s strategic advisory team said in her emailed responses.

Off-plan is not going away

However, the UAE real estate market could continue to see the launch of new residential off-plan projects over the next three months as developers often wait for third and fourth quarters to launch sales.

“This is mainly because September-October typically sees a resumption in overall business activity and an increase in the number of people moving into the city after a somewhat subdued summer period,” said Robert Thomas, head of residential at consultancy Core.

He told Thomson Reuters Projects by email that Cityscape Global, which is also held during this period, has traditionally been an attractive platform for developers to announce projects.

“Yes, we are launching an off-plan project at Cityscape and will have exclusive offers for the three-day exhibition,” said Nasser Amer, vice president of Deyaar Development said by email, without disclosing the project. In the days leading up to the project, the company announced the launch of the 18-storey Bella Rose apartment building in Dubai Science Park, and the appointment of a contractor for the scheme.

Amer said off-plan sales packed with value-added offers would continue to lead the trend as we navigate through 2019.

Another Dubai-based developer, Damac Propertiesm said it is launching a new off-plan project, Fiora in Golf Verde, during the event, at a starting price of 399,000 UAE dirhams with low initial deposit and an attractive five-year payment plan.

However, due to increasing demand by investors for ready properties, the company will also be using the event to showcase some of its other projects, including Golf and Park Townhouses.

“Within the UAE, we have seen a pick-up in sales of ready properties that are coming with appealing value for both international investors and expats looking to own their own space, within growing communities,” said Niall McLoughlin, senior vice president at Damac Properties via email.

Haider Tuaima, head of real estate research at ValuStrat, said several reputed developers were able to hand over their projects either on time or slightly beyond.

“This led off-plan investors to trust those developers and pick well-located projects. Additionally, payment plans have recently become far more attractive as many developers waived various fees and opted for easy post-handover payments,” he told Thomson Reuters Projects over email.

Affordability is key

A new trend, according to Core’s Thomas, is the higher number of transactions within the affordable and mid-market segments of off-plan compared to other sectors driven by developer incentives and pricing schemes that allow both investor and end-user buyers to enter the market with more flexible payment options.

Citing data from Property Monitor, Manika Dhama, an associate partner in Cavendish Maxwell’s strategic consulting and research division, said that 27 percent of the off-plan transfers for apartments in the first nine months of 2018 were in the 1,200 to 1,500 dirhams per sq ft price bracket.

“Studio and one bedroom units continued to be the most active type transferred in both the off-plan and secondary market in 2018 to date,” she said in her email to Thomson Reuters Projects.

Muhammad BinGhatti, CEO & head of architecture at Binghatti Holding, agreed that the market had been gradually shifting into affordable housing segment over the past few years.

“We started developing affordable houses five years ago, and we’ve now reached 40 projects with a portfolio exceeding 3.5 billion dirhams,” he said by email to Thomson Reuters Projects, adding that its target market is people earning between 15,000 and 30,000 dirhams per month.

Property experts also said that key market players have already begun to accept the reality that oil prices are likely to remain below 2014 levels of $100-plus for the foreseeable future.

“This is evidenced by the lower number of recent off-plan launches and the variety of options on offer aimed at stimulating absorption rates even though the price of a barrel of crude has increased around 35 percent to $70 per barrel from September 2017 to today,” said Vucinic of Chestertons.

Core’s Thomas pointed out that many developers are undertaking further market research to reassess their current and future projects’ market positioning and asset mix strategies.

Deyaar’s Amer said they take into account the importance of key international and regional markets to complement their sales efforts at the domestic level.

“We continue to organise road shows and sales events in high potential markets such as China and India. We are extremely pleased with the results so far and are aiming for higher contribution from these markets,” he said.

Players such as Binghatti too have begun to look at other source markets to counter lower sales momentum in the domestic market.

“We see more Chinese groups around Dubai, and everyone is focusing on that market. We’ve also reached out to the Chinese market and have received great interest from there,” said BinGhatti.

Zawya