Articles
Companies

Home / NEWS / Off-plan projects 'killing' Dubai secondary market

Off-plan projects 'killing' Dubai secondary market

by Paromita Dey on Jul 8, 2015


Off-plan projects are impeding Dubai's property market.
Off-plan projects are impeding Dubai's property market.

RELATED ARTICLES: Will there be a correction in UAE property market? | Industry split over Dubai property prices' future | Dubai property market to be 'normal' by Q4 2015

A slew of off-plan project launches in Dubai over the last 12 months has driven prices of secondary market properties down by 15%, a recently-released study has found.

According to Killing Them Softly: The impact and incidence of off plan by Unitas Consultancy and Reidin.com, off-plan launches have been at levels that have averaged 20% below the secondary market rates, which in turn has caused prices to soften in the secondary market by approximately 15% on a city-wise basis.

Craig Plumb, head of research from JLL, said: “Off plan projects are generally more profitable for developers than other projects, as the developer receives a proportion of the payment earlier in the process, and this cash can be used to finance later stages of the construction.”

Dubailand has topped the list of maximum number of off-plan project launches, followed by Dubai Silicon Oasis, Jumeirah Village Circle, and Downtown Dubai.

Off-plan launches have been gathering pace since 2012, and have sucked out liquidity from the secondary market, the report states. 

Finding no commendable returns in the secondary market, investors rushed towards off-plan properties to benefit from the easy payment plans, leading to a decline in secondary market activity, the report speculates.

The trend in the pricing and the affordability quotient of off-plan projects has induced the effect of softening on the secondary market. If the developers follow the old trends, then property prices will start to increase once again. 

Faisal Durrani, international research and business development manager from Cluttons said: “A study conducted in 2008-09 showed an average income of a household to be approximately $54,196 (AED199,000) per annum, while average rents went up to $30,491 (AED112,000) per annum. This means that an average earning person would end up spending more than half his income in rents.

“There comes the affordability factor of off-plan projects, wherein enough time is guaranteed to pay off the bank debts and the buyer would not end up spending his life savings in rents. Even if there are locational differences, buyers tend to switch to new low-priced off-plan launches from the ready market," Durrani added. 

Off-plan projects bring their own set of challenges. A fall in the level of transactions across the Dubai market has been reported, with data from Dubai Land Department suggesting the total number of villas and apartments sold over the first six months of 2015 was 70% below the number in the same period 2014.

Experts believe that off-plan projects might be a good idea for GCC nationals, but still pose challenges for expatriates: “Dubai's government has imposed various regulations on developers, which includes having an escrow account and authoritative bodies like Real Estate Regulatory Authority keeping a tab on them so that they don’t falter,” Matthew Green, head of research and consultancy for CBRE said. 

“But investing in an off-plan project still pose a challenge for expatriates since job security overall in the Gulf is low, with very few options of adequate alternative jobs available.

"Dubai is trying to create more job opportunities since it needs more permanent residents in order to secure the future of its real estate market,” he added. 
 



Advertisement



RELATED ARTICLES



Articles
Companies