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Developers take a cautious approach to unit launches
Oversupply and subdued prices make them delay coming to market with new projects
Developers in Dubai have launched 9,034 units, both apartments, villas and townhouses, year to date in 2018, according to data released by GCP-Reidin. This compares to a total of 46,893 units launched across the whole of 2017.
The decline in the number of launches is a result of the demand and supply imbalance caused by excessive construction activity in recent years, resulting in oversupply.
“In turn, property take-up rates have fallen, leading to a decline in sales prices, translating into lower potential profit margins for developers. As a consequence, some developers are delaying coming to the market,” explains Ivana Gazivoda Vucinic, head of consulting and valuations and advisory operations at Chestertons Mena.
After last year’s frenzy, developers seem to have maxed out on post-handover incentives. Therefore, demand has been sluggish in the off-plan space, with some re-allocation towards the ready market.
“The current and anticipated oversupply situation has resulted in developers taking a cautious approach in regard to project launches. Global, regional and local economic headwinds have weakened the spending power and therefore demand from resident and overseas investors and end-users. The rise in construction costs has also squeezed margins for many smaller third party developers who struggle to compete with the big master developers. Until the economy recovers and market sentiment improves, we believe many will adopt a wait-and-see approach,” observes Jenny Weidling, manager – research and advisory, Asteco Property Management.
Meanwhile, developers handed over 27,968 homes in Dubai last year against analyst estimates of 31,000 units – this translates to a completion rate of 90 per cent (according to GCP-Reidin data). This trumps previous years, say in 2016 when only 15,914 units were delivered and 2015 when only 12,366 homes were handed over. This represents completion rates of 61 per cent and 49 per cent, respectively.
Dubai has traditionally seen a lag between actual supply and anticipated supply. Delays are caused by a variety of factors but generally are a result of intentional phasing considerations and unplanned construction delays/financial issues.
“Delays can be caused by many factors, including issues directly arising from the construction process, site or planning restrictions. On the other hand, financial obstacles can also be a major factor impacting the timeframe of project delivery,” says Dima Isshak, senior consultant – strategic advisory, CBRE.
Haider Tuaima, head of real estate research at ValuStrat, observes: “It is normal to expect some developments to suffer from poor project and cash-flow management as well as promising unachievable completion dates.”
In some cases, ambitious delivery dates have been advertised to lure buyers, although not always successfully which has resulted in delayed delivery. In other cases, developers may have turned their attention to other more lucrative projects.
“Since the advent of regulations in 2008 and the subsequent tightening to bring in regulatory oversight, smaller developers have faced delays in funding. The delays are compounded when asset prices are sluggish, as was the case starting 2014. The consequence of this is that the supply pipeline is never as robust or equivalent to the announced supply; this leads to larger developers becoming more dominant. But equally with larger developers as well, there is always a lag in terms of units being delivered on time, with a financing model that is overtly reliant on off-plan sales against the backdrop of a sluggish market,” explains Hussain Alladin, head of IR and research, Global Capital Partners.
The subdued launches are likely to result in a drop in property completion rates as well. Smaller developers will continue to consolidate while subdued launches imply longer time frames for selling stock, which then elongates completion time.
“The subdued number of launches may release pressure off those projects that are currently under construction and could even have a positive impact on the absorption rates of some of the developments in the market,” reckons CBRE’s Isshak.
However, with the rise of post-handover payment plans, it may even incentivise timely project completions by developers who are looking to achieve satisfactory revenue levels.
“That said, it is likely that project completions will drop over the coming months as a result of the pressure on new project launches and oversupply,” Vucinic concludes.
Original Article: https://www.khaleejtimes.com/business/real-estate/developers-take-a-cautious-approach-to-unit-launches
Dubai property records best ever third quarter as value of sales hits $11.5bn
Dubai recorded real estate transactions worth Dh42.4 billion ($11.5bn) in the three months to September 30, making it the best third quarter in the emirate’s history in terms of the value of sales transactions, according to listings website Property Finder.
The emirate registered 15,926 real estate deals in the same period, making it the best third quarter for sales transaction volumes since 2009, Property Finder said on Wednesday.
The company said 56.6 per cent of all transactions in Dubai during the third quarter were for secondary or ready properties, while off-plan properties accounted for 43.4 per cent.
The off-plan market accounted for 6,909 transactions worth Dh13.5bn in the third quarter and the secondary market registered 9,017 deals worth Dh28.85bn, the statement added.
“To date, off-plan sales had the highest value of sales transactions in the Dubai real estate market in over eight years [since December 2013],” Lynnette Sacchetto, director of research and data at Property Finder, said.
“Off-plan sales started to increase considerably in 2021 and the amount of sales transactions between secondary and off-plan are now about 50:50.”
The UAE property market, which softened due to a three-year oil price slump that began in 2014 and oversupply concerns, is showing signs of a recovery as people upgrade to larger homes with outdoor amenities amid a remote working and learning trend sparked by Covid-19.
Economic support measures and government initiatives – such as residency permits for retirees and remote workers, as well as the expansion of the 10-year golden visa programme – have helped to improve sentiment.
Residential transaction volumes in Dubai were up 76.8 per cent in the first eight months of the year, while secondary market transactions jumped 120.7 per cent and off-plan transactions rose 39 per cent, according to real estate consultancy CBRE.
The volume of off-plan transactions in Dubai during the third quarter of this year increased 14.7 per cent compared with the previous quarter, while the number of secondary market deals fell by 6.02 per cent, Property Finder said.
Meanwhile, the value of off-plan sales transactions increased 47.1 per cent compared with the previous quarter. The value of secondary sales deals also rose 4.2 per cent.
The top areas for secondary sales transactions for villas and townhouses in the third quarter were Damac Hills 2, Dubai Hills Estate, Arabian Ranches, Nad Al Sheba and The Springs, according to Property Finder.
“The prices of villas and townhouses continue to rise due to very high demand and low supply and we are only expecting 6,000 new units to be completed by the end of 2021. Therefore, this doesn’t add much of a dent to the supply equation,” Ms Sacchetto said.
The most popular areas for ready apartments were Jumeirah Lakes Towers, Dubai Marina, Meydan, Jumeirah Village Circle (JVC) and Downtown Dubai.
The top areas for off-plan sales transactions for villas and townhouses included Arabian Ranches 3, Dubai Land, Tilal Al Ghaf, Dubai South and The Valley, Property Finder said.
As for apartments, the top areas of interest were Business Bay, Dubai Marina, JVC, Downtown Dubai and JLT.
