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The off-plan impact on Dubai real estate

Posted by PH Real Estate on 24 January, 2018
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The off-plan impact on Dubai real estate

In a buyer’s market, end users are pushing developers to rethink their strategies and projects

Image Credit: Shutterstock
The illuminated Meydan bridge frames a section of the Dubai skyline. Some developers have started introducing competitively priced projects in Meydan
Published: 00:00 January 24, 2018Property Weekly

By Hina Navin

New supply, attractive payment plans and the recent price correction have opened better deals for homebuyers in Dubai’s property market. Analysts say a big chunk of house-hunters are end users and are thus very keen on pricing. This also means that most are finance buyers. Off-plan schemes are accordingly the most preferred product, given their competitive price.

Although this is normal in a property market cycle, the rise in demand from budget buyers has also changed the face of not a few master-plan developments. “We are witnessing a lot of supply coming into the market, and it has made the market flip from a seller’s market to a buyer’s market,” says Francis Otieno Sr., global property consultant at Gulf Sotheby’s International Realty. “Developers like Azizi have changed the scope of Meydan, which was formerly an exclusive high-end part of Dubai and brought in affordable and mid-class apartments. Areas like Jumeirah Village Circle have also seen an upsurge of developments, which are affordable and are pushing buyers from the stronger places like Dubai Marina, where the prices have held their ground and are dropping slowly as opposed to other areas.”

Off-plan sales

Around 73 per cent of all residential sales transactions in the third quarter last year were off-plan, according to a ValuStrat report. The key locations were Downtown Dubai with 88 per cent of sales being off-plan, Business Bay (83 per cent), Dubai Silicon Oasis (82 per cent) and Jumeirah Village (78 per cent). “Buyers have been attracted away from older, second-hand properties with modern specification, lower price points, attractive payment plans and hoped-for appreciation during the pre-handover build period,” explains Declan King, managing director and group head real estate, ValuStrat. “This trend is now evident in transaction statistics and is impacting some parts of the secondary market.”

The value of off-plan transactions went up by 118 per cent to Dh4.04 billion with Downtown owning half the value, according to a Chestertons Mena report, which also noted a 86 per cent increase in the total number of off-plan transactions in the third quarter from the previous quarter. Dubai South was the most transacted area with 1,151 transactions, followed by Downtown Dubai with 821 and Business Bay with 686. It also pointed out that the increased interest in off-plan has resulted in a continued negative impact on completed units, which saw a decrease of 11 per cent in transaction volumes and 19 per cent in value.

Moving forward a slight pickup in the number of completed unit transactions is expected, according to Ivana Gazivoda Vucinic, head of advisory and research at Chestertons Mena. “This will, however, have a negative impact on off-plan sales transactions, which we expect to decline and then stabilise.”

Meanwhile, 29 off-plan projects were launched in the third quarter, adding more than 21,000 units to the residential pipeline. Some of the notable projects were Azizi Riviera in Meydan, Park Lane Residence in Dubai South, wasl’s Park Gate Residences in Zabeel and Dubai Properties’ Marasi Riverside in Business Bay.

Investors

Investors are now also buying off-plan as a significant number of projects have been launched and continue to be launched with attractive selling points and payment plans, according to Sandrine Loureiro, operations manager of Rocky Real Estate. “There are still many sales happening in the current market, but most of them are smaller-ticket items, such as studios and one-bedders, and off-plan sales have taken a majority share of the market.”

Loureiro says sales of completed properties are more common in very specific areas. “Ready properties are selling too in freehold locations, which are easy to rent and in well-established communities.”

She advises sellers to be realistic with their asking prices, while telling investors to pay careful attention on income potential. For rental property, for example, Loureiro believes the investor should look for units that can potentially earn a minimum of 6 per cent.

Gemma Walsh, manager of residential sales and leasing at Better Homes, was more on point, telling sellers that they should expect prices below the market value. “Currently, properties that are in high demand are those with the views and the best return on investment in the most desirable areas, [but] everything is below the market price,” says Walsh. “On the bright side, although the market is saturated, buyers are still buying, which indicates it is a good time to buy.”

However, job losses have affected the rental market, which is a concern for rental residential property investors. “The properties that sell best are mostly on par with the market’s demand,” says Walsh. “During this time, sellers are also becoming more eager to vend their properties. These trends are converting many tenants to property owners and first-time buyers. Also at the moment, off-plan’s return on investment is better than the ready villas since attractive payment plans are available.”

In such a market condition, Walsh says sellers should act quickly, i.e. if a seller receives an offer from serious buyers just within or a little bit below the market price, then go for it. However, for sellers unable to find the right deals, it might be better to rethink their strategy.

“If a seller feels that the current market rate is too low, I would advise to rent it out for a few years,” says Otieno. “Bring it back in the market when things are a bit better, or even if the rate stays there, the owner will have gained on the rental income, which will make an overall difference.”

Tips for sellers in a down market

To achieve your sales goal, try to think like a buyer. Rajiv Ghanekar, senior real estate broker, Keller Williams Real Estate, says this allows you to determine your ideal buyer. Here are the rest of his tips when selling in a down market.

1. Understand the market dynamics. As real estate investor/owner, it is a good practice to keep a tab on the real estate market and in general the economy. Give an hour a week to browse through reliable real estate portals and take account of how similar units are priced. Further, understand the nuances of the property. This historical data will serve as a good indicator of demand and supply and reflect price variation. With this information, owners can time their sale strategically, rather than haphazardly.

2. Think like a buyer. Know your ideal buyers – are they investors or end users – and determine strategies to adopt for each buyer type. Ask yourself, does the property have the curb appeal, or would the buyer consider your property as value for money? The right buyers are not concerned with the worth of a property, but they will look for value.

3. Price to sell. Most sellers in our market, regretfully, price it wrong, which is the primary reason a property stays on the market for months. Ask your listing agent/broker to produce a comparative market analysis for last three months; take note of the latest transactions and price it accordingly. In the current market scenario, there is no point keeping a margin to negotiate. When it comes to pricing in a down market, don’t chase the market, be wise and price ahead.

4. Choose the right broker. This is quite self-explanatory. The right broker would have a stronghold in your area, has sold similar properties, maintains a good reputation, has a stream of prospects on hand and does business with integrity and in line with government guidelines. Moreover, to achieve the best price, go exclusive with an agent. Exclusivity gives the appointed broker the edge over others and is usually in better total control over screening various prospects, arranging viewings, coordinating with other brokers, negotiating and ultimately leading towards a successful closure. Exclusivity can be terminated by giving a week’s written notice for non-performance.

5. Property staging. The primary goal of home staging is to enhance the appeal of the home to highest number of potential buyers.

Source: http://gulfnews.com/business/property/the-off-plan-impact-on-dubai-real-estate-1.2161688

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