By now, it is common knowledge that off-plan transaction volumes witnessed a sizeable reduction from 2017 to 2018. There were fewer off-plan launches in 2018 compared to previous years. Also, developers now prefer to sell inventories closer to the actual date of delivery to gain higher traction from both investors and end-users.

What can also be noticed is that average unit prices in the off-plan market are contracting. This reflects both lower price per sqft and smaller unit sizes, resulting in lower sale prices. Most off-plan inventories are now focused on the affordable and low to mid-market options.

According to the consultancy Core, average off-plan property prices in Dubai have been on a steady decline: Dh1.53 million in 2016, Dh1.4 million in 2017 and Dh1.32 million in 2018.

“This illustrates that the main adjustment lever employed by developers to compete in the off-plan market has been by lowering entry prices rather than adjusting to other market factors. As more unit options become available, this trend could impact the overall rental market and in turn lead to contracting yields, potentially reducing investor demand in the short to mid-term. It is, however, expected to become a very attractive situation for tenants as well as long-term end-user buyers as the market slowly gravitates towards stabilising at lower levels,” said Edward Macura, partner at Core.

According to ambitious estimates, there are up to 60,000 units proposed to complete in Dubai in 2019 alone.

“Given the large amount of new projects being launched off-plan, it is not surprising that developers are becoming more competitive on pricing and continuing to offer not only lower prices but also extended payment terms,” observed Craig Plumb, head of research for JLL Mena.

Declan King, managing director and group head – real estate, ValuStrat, said price is always the most immediate tool a developer can use to encourage sales. “While the overall ticket price may be falling in some parts of Dubai, it may not tell the full story, as smaller unit sizes may mean buyers are actually paying relatively resilient rates per sqft in some areas,” he informed.

Although sales prices continue to decline, the rate of decline in off-plan sales prices is slowing as developers are reaching a point where reducing prices further would result in building below cost, which for many is not feasible.

“Historically, Dubai real estate market performance was measured using the price per sqft. However, due to the general squeeze in purchasing power, developers have shifted their focus to the price point of a unit, which ultimately resulted in smaller unit sizes,” explained John Stevens, managing director, Asteco.

From the looks of it, developers are today willing to go to any length to attract buyers – reduced down payments, low monthly installments, extensive post-handover payment terms, absorption of DLD/agent fees, etc.

“In fact, with traditional sales incentives almost exhausted, some developers are offering buy-back options in case of job loss and annual stipends for project delays. The sheer amount of current/future supply, resulting competition between developers and drop in prices puts the negotiating power firmly in the hands of the buyer, thus attracting people with a medium- to long-term investment horizon. However, wealth-creating industries are required to attract a larger population to occupy the property being built,” added Stevens.

Secondary market

Transaction volumes in the secondary sales market (both for cash and mortgage transactions) have been seeing a steady increase over the past three years. The average price for a ready home has also been relatively stable: Dh1.7 million in 2016, Dh1.84 million in 2017 and Dh1.77 million in 2018, according to statistics from Core.

“Both these trends denote that end-users with a long-term horizon are moving up the housing ladder to ownership, capitalising on softened sales prices and looking to rather pay mortgages than rents. However, with 75 per cent loan-to-value ratio and over 5 to 6 per cent ancillary charges, there is still a section of the mid-market demographics who may find it challenging to fund the initial down-payment,” reckoned Core’s Macura.

The rise in mortgage transactions also reflects a shift in the market from investors, who often purchase on a cash basis, towards owner-occupiers, who are far more likely to use mortgages.

“This can be seen as a healthy maturing of the Dubai market that has been over dependent on demand from investors in the past,” added JLL’s Plumb.

The steady decline in sales prices for completed projects has increased affordability and hence opened the market to a wider investor pool and facilitated a rise in end-users and first-time buyers. In fact, the Dubai Land Department announced that there were 9,500 first-time buyers between January and August 2018.

“The mind-set of people in the emirate is changing and residents take a longer-term view on living in Dubai and understand the benefits of owning vs renting, which boosts property investments. The added advantage of a completed property is that it can be assessed/viewed [in terms of location, quality specifications and facilities] and moved in or leased immediately. However, there are still challenges when it comes to LTV ratios currently in place. Although, rumour has it that the UAE Central Bank may consider lowering the ratio by 5 per cent,” Asteco’s Stevens signed off.

All rights reserved to the initial publisher for khaleejtimes.com

Collected and published by Arms &McGregor International Realty® editorial team. Get in touch with us at [email protected]