Some homes discounted by a third as reality bites and the credit crunch squeezes end-user demand.
Dubai investor cuts prices to entice buyers to new seafront development
ABU DHABI // The sales market for new apartments in Dubai has become so challenging that when VIP Waterfront, a Ukraine-based company, launched its first project this week it slashed prices by one third from those planned earlier this year. "We had a debate about whether we should launch and we decided to go ahead with schedule," said Slava Garin, the chief executive of VIP Waterfront, which is part of the Ukraine-based Olimp Corporation. "We are glad we did it, but it wouldn't be true to say there are big lines of people waiting."
Their pre-emptive price cut was among the first signs of the pressures that developers across the country face as sales grind to a halt in the aftermath of global financial turmoil. Speculators are fleeing the market and people who want to live in new buildings are having difficulty obtaining loans because banks have restricted lending. VIP Waterfront's decision also serves as a sign of the levelling off and, in some cases, decrease of prices that could hit the market in the months to come, analysts said.
Even at the reduced prices, which now average about Dh2,300 (US$626) a square foot, Mr Garin said they had sold only a handful of the units they released from the Dh1.8 billion Royal Bay development on the Waterfront in Madinat Al Arab earlier this week. "There is a kind of gap now, where the previous generation of investors disappeared and the long-term investors are still coming," he said. The buyers at Royal Bay include Emiratis who are eyeing long-term growth and people from Eastern Europe and Russia who are using property as a more stable investment than the highly volatile equity markets.
"We are lucky we have funds to invest in this because we will have to wait more than a year for this market to come back to a normal situation," he said. It is a far cry from the days when buyers - both speculators and residents looking for relief from high rental increases - camped out overnight to buy an apartment, or several. In June, Nakheel's head of sales, Manal Shaheen, told The National that the company had adopted safeguards to reduce the long queues of sometimes up to 12 hours outside their sales office. Potential buyers were required to make reservations in advance, and at times, even this system was overrun.
But since the company launched its Forbidden City project more than a week ago, few people have bought apartments, said another official who asked not to be named because they were not authorised to speak on behalf of the company. A Nakheel spokesman declined to disclose the number of sales at Forbidden City but maintained that sales "have been steady and we are satisfied with the results so far, particularly under the current market circumstances".
Located in International City, the project will have about 4,000 apartments and is expected to be finished in April 2011. Nakheel will be among the hardest pressed to increase sales by the end of the year, as they are planning to launch close to 10 more projects, representing thousands of units, by the end of the year. Ms Shaheen said in June that the second half of this year was Nakheel's "aggressive sales period" after years of planning.
While many developers have avoided lowering prices because of the potentially negative impact it could have on investor sentiment, they are starting to make the payment structures for off-plan properties more attractive. Buyers at the newest phase of Wadi Walk in the City of Arabia project, for instance, now have to pay 20 per cent during the first six months, followed by 60 per cent at major construction milestones and 20 per cent at completion.
Earlier phases of the same project required buyers to pay 80 per cent of the sales price in the first two years, followed by 20 per cent on completion. "Basically this makes it more attractive for buyers," said Nooman Khan, the senior vice president of sales at City of Arabia. "The market has slowed down quite considerably." Mr Khan said that buyers from troubled regions, like Pakistan and Iran, were still expressing interest in buying homes in Dubai, while the UK buyers that were once fuelling the lion's share of sales at the project have retreated from the market.
"I am not buying advertising right now, because that would just be wasted money," he said. "Our main goal is to just do the construction and bring the structures up as soon as possible, because that is what buyers want to see the most right now - progress." Alan O'Donnell, the managing director of Pure Real Estate in Abu Dhabi, said the market had seemingly matured overnight. "Everyone is squeezed," he said. "The secondary market is not buying, so buyers who were thinking of reselling quickly have to start looking long term at rental returns. The market has moved from the short term to the long term."