Off-plan boom hurting sellers of completed Dubai homes
Report by consultancy Core Savills says Downtown Dubai property values fall during second quarter while Jumeirah Village leads rises
Dubai’s burgeoning off-plan sales market is having a ‘detrimental effect’ on prices of completed homes in certain parts of the city, says a new report from Core Savills.
The consultancy's latest Dubai Residential Market Update states that homeowners in areas such as Downtown Dubai and Dubai Marina are competing for the same pool of investors as developers launching new schemes, with the latter offering “highly competitive and attractive payment plans”, often for properties that are more competitively priced.
“We remain watchful over growing off-plan sales and lucrative payment plans, which continue to undercut both low- and mid-segment sale prices as well as adding systemic risk to the overall market — something which might require further regulatory strengthening,” Core Savills said .
There has been a disparity in price movements across the city, with Downtown Dubai apartments registering a 9 per cent year-on-year decline in values, DIFC properties falling in value by 4 per cent and Discovery Gardens by 2 per cent, the consultancy said .
However, apartments in more affordable areas have enjoyed better returns, with units in Jumeirah Village increasing in value by 6 per cent year-on-year, Dubai Sports City by 3 per cent and Dubailand by 2 per cent.
“The mainstream market displayed disparity, with a few areas marking a rise, while others observed a ‘double dip’,” said David Godchaux, the chief executive of Core Savills. “The outer areas of Dubailand and Dubai Sports City maintained a relatively stable upward momentum. Discovery Gardens displayed a classic case of double dipping, with newer developments being delivered in proximity to the submarket at very competitive prices.”
A similar pattern took place in the villa market, with Jumeirah Park properties down by 5 per cent year-on-year, Jumeirah Islands down 4 per cent and Palm Jumeirah down 3 per cent. Villas in Jumeirah Village increased in value by 4 per cent, The Lakes by 3 per cent and Dubailand by 3 per cent.
Rents have continued to fall across most areas of the city, with Dubailand apartments being the only exception, “possibly due to low entry level rents”, Core Savills said. The company said this hasn’t had a negative effect on investor appetite though, as yields in most areas remain above 7.5 per cent for apartments and between 5.5 and 6 per cent for villas, a higher figure than many other forms of investment in the region.
The consultancy expects rents to continue falling throughout the summer, but to stabilise “in core locations” by next year, although rents in secondary areas may soften further.
Firas Al Msaddi, the chief executive of Dubai-based broker fäm Properties, said off-plan sales are not affecting prices of completed homes, because “buyers for ready homes are normally end users or investor looking for revenue-generating property”.
He said some of the weakening in prices for completed homes can be attributed to their age, with newer properties commanding a premium over homes that are 10 years old.
“This trend has also been driven by concerns over fire safety, and the knowledge that the new regulations introduced means that newer buildings feature fire-resistant cladding,” he said.
“Some of the most popular buildings of previous years, in areas like Jumeirah Beach Residence, Dubai Marina and Business Bay, are now experiencing price stress for this very reason.”
Mr Al Msaddi also dismissed the notion that growth in off-plan sales is leading to an oversupply in the market.
“There’s still a phobic notion in the market regarding supply and demand,” he said.
“While some property sectors may be over-supplied at present, others are under-supplied, especially when you consider what will be ready to live in next year.
“We also need to consider that over-supplied products today might be under-supplied in the near future in a progressive city like Dubai, which has a proven long-term ability to attract new residents and foreign investments through successful planning and execution.”
Updated: July 22, 2017 09:01 PM