Off-plan, affordability drive Dubai market

Rents for Dubai apartments in the quarter ending September 2017 were down four per cent from the previous quarter.

At the beginning of 2017, the global credit rating agency, Standard & Poor's, had predicted that home prices and rents in Dubai would decline all through 2017 owing to low oil prices and currency pressures.
Fast forward a few months and the numbers confirm the above prediction. According to real estate consultancy CBRE, residential sales and leasing markets witnessed a decline in prices over the previous quarters.
Asteco, another real estate consultancy firm, echoed these views, with figures demonstrating that rents for apartments in the quarter ending September 2017 were down four per cent from the previous quarter but recorded a double digit decline of 12 per cent over the same period a year ago.
In fact, September witnessed one of the steepest declines in rental rates in the year. According to real estate tracker Reidin, apartment rents fell by 0.85 per cent on month and over six per cent on year.
A large part of this decline can be attributed to the buyer's or tenant's hope that the upcoming flood of properties will give them ample options to choose from, at a price most attractive for them.
With Dubai expecting to witness growing demand in the run-up to Expo 2020, it may be fair to say that many builders and developers are lining up their project deliveries over the next two years.
JLL's Q3 2017 Dubai Real Estate Market Overview report showed that 3,300 apartments, 660 villas and 75 townhouses were delivered in Q3 alone, taking the total units in the residential sector to 487,000. By 2020, JLL estimates 80,000 more residential units to be available on the market.
Yet, it is worth noting that transactions have witnessed an uptick proving that there are still takers for good deals in the market. The Dubai Land Department (DLD) seemed to confirm this emerging trend following the publication of figures showing a spike of 29 per cent in the overall number of transactions recorded in the first half of the year.
The rising prevalence of off-plan properties in recent times has been one of the major drivers of this trend. Off-plan properties emphasise on the affordability of the investment, allowing buyers to put down less than half of the property's value at first and stagger the rest of the payment over several months after handover. Those who wish to secure good returns from the property market generally prefer this flexible payment method.
Builders and developers further tried to attract investors with extended repayment schedules and attractive payment options, with some developers who even offer buyers to pay as little as 20 per cent of the value of the property at the time of booking and the remaining 80 per cent after taking delivery.
This new option has seemingly brought the market within the reach of many, turning tenants into buyers. Further, come next year, the DLD will devise ways to incentivise developers to include affordable housing options in their product portfolio, therefore addressing the gap in the market for such offerings.
To confirm the rise in affordable housing are DLD figures that estimate that Cityscape Global in Dubai, which allowed exhibitors to sell properties after a decade, has seen an impressive 186 per cent increase in off-plan sales or in more tangible words, has witnessed sales worth Dh870 million.
Developers seem to be getting the hint. To appeal to the affordable segment, 43 per cent of the upcoming supply over the next five years is priced below the Dh1,000 per sq ft level, according to estimates from Global Capital Partners.
However, the real test will only come when these projects are completed. Given the nature of the investment plan, while on one hand there may be cases of projects being delayed or stalled, on the other, it is worth reflecting whether buyers will fulfill their payment conditions. In this case, it is perhaps important to know that a new law provides information on the consequences for breaches of contracts by both investors and developers.
Developments like these are indicative of the growing maturity of the market. 2017 was all about off-plan properties and affordable housing. By the looks of it, 2018 will be a continuation of that.
The writer is a partner and head of building construction and real estate (BCRE) at KPMG in the Lower Gulf. Views expressed are his own and do not reflect the newspaper's policy.