More plot owners now opt to develop land in Dubai

dubai - They are encouraged by the offer of completed infrastructure in prime areas

The real estate sector in Dubai, currently on an upswing cycle, is showing signs of increasing maturity and sustainability with a change of investment strategy by plot owners - reflecting a broader shift away from speculation, property experts said.

In Dubai real estate, more and more investors are currently opting to develop land plots rather than wait for a return to lucrative sales profits in a market no longer dominated by speculators, they said.

In the emerging trend, as plot owners take the development route triggering a building boom, land advisory is set to boom while speculators fade, realty experts said.

Highlighting this shift in market trend, Firas Al Msaddi, CEO of fäm Properties, a real estate brokerage, said in the last three years, plot prices reached optimum level, killing opportunities to buy and sell for profit in the short and medium term.

Between 2010 to 2013 in prime Dubai areas, trading plots was one of the most lucrative real estate investments, said Al Msaddi.

"As re-sale transactions dropped drastically, more and more plot owners have taken the decision to develop their land, many encouraged by the offer of completed infrastructure in prime areas such as Downtown, Business Bay and Dubai Marina."

Figures from the Dubai Statistics Centre show a major increase in the number of new multi-storey building permits issued over the last three years - 1,368 compared with just 674 between 2010-13 - and fäm Properties expects a boom in demand for its land development advisory services to continue.

Plot owners opting to develop a project on their land are finding that many banks have a good appetite to finance construction, provided the plot is fully paid up and there are healthy financials, Al Msaddi said.

"They have to keep in mind that profit margin is low should they wish to inject full equity and sell when ready. But there is a decent RoI [return on investment] and IRR [internal rate of return] to be generated if they plan their bank funding and off-plan sales well."

However, those with holding power for two years but no development expertise can look for a joint venture with a credible developer or seek a development management company with a proven record in A to Z of land advisory, he said.

At the peak of the boom in land trading before 2014, prime areas such as Downtown, Business Bay and Dubai Marina were the most lucrative. For instance,

G+18++ plots launched by Dubai Properties in Downtown during 2010-11 for Dh195 per sq ft climbed to Dh240 per sq ft on GFA (gross floor area). The same plots also fetched Dh350-400 per sq ft in the secondary market.

"But few investors were purchasing plots to develop, and short-term price increase for plots attracted many aiming to re-sell for a decent profit margin," he said.

The change of investment strategy by plot owners reflects a broader shift away from speculation in Dubai real estate. Data from the Dubai Land Department shows off-plan property sales increased in recent years, equalling those of ready property transactions for the first second quarter of this year.

"While initial launch phase sales by speculators have fallen, there has been a significant increase in pre-handover sales within six to nine months of completion when buyers are medium to long-term investors or end-users," said Al Msaddi. "It's no longer a market dominated by speculators looking to buy and flip properties for quick profits."

The background for this change was that between 2012 and late 2014, launch phase investors were able to buy off-plan and sell at a profit within 12 months.

"But from early 2015, developers began launching new phases and sub-projects in existing developments, offering the same rates with more attractive payment plans," explained Msaddi. "This meant that investors who had bought the old stock with the original, less attractive, payment plans, found it more difficult to sell at a profit in the short term."

- issacjohn@khaleejtimes.com