Onwards and upwards

Leo Sterling CEO Laura Mortorano.

Leo Sterling CEO Laura Mortorano discusses the current status of property in the region and what that means for the construction sector in the coming months.

The construction industry is going through a very difficult time. Projects are being delayed or cancelled, cash flow is severely affected and deliveries of some projects are already behind plan. But there are quite a few positives to be derived from the prevailing scenario.

The ongoing market correction has meant that realistic deadlines and prices are now the order of the day.
 

Story continues below

Advertisement

FEATURED COMMENT Please click here to comment on this article

The market is now being cleansed of speculators both from the developers end and the buyers’ side. The news of Rera becoming an active monitoring body with regards to the progress of construction at various sites across Dubai and the mandatory registration of projects is definitely a welcome change.

While the news of some projects being put on hold or in some cases being cancelled seems alarming, it’s a sign of the Dubai property sector moving towards creating a mature real estate environment.  From my point of view it was healthy to weed out small or medium sized contractors who really could not start or finish their projects. There will be more closures of smaller contractors and sub-contractors as a result of what the market is going through.

But this weeding will benefit the market in the long term and also help restore consumer confidence besides improving Dubai’s overall image as a serious market place.

This will also bring in the long awaited price correction into the market. It is common knowledge that a large segment of the market has stayed away from buying property due to the high prices and the general labeling of most development as luxury or super-luxury.

The lower and more realistic prices are not just in favour of the buyers, it also benefits the contractors and developers by attracting those who were unsure of making an investment.

As is being widely proclaimed, this is now an end-users market. Declining demand, tight liquidity and strict financing options will allow only the fittest and committed to survive. As difficult and painful it is for the property sector to go through the current crisis, at the end, speculation had to be replaced by investments. 

This is a longer term activity and it lays the foundation for a solid and more stable market. This is positive for the real estate market and for Dubai as a whole.

We are also moving away from the  off-plan sales. The reduction in these sales might see a slowdown in the construction sector, but a recent report from Proleads Global has indicated that work on civil construction projects worth US $698 billion (AED2.5 trillion) continues to move ahead.

Rera on its part, has now ensured that developers looking to sell off-plan are committed to the project and delivery schedules. Dubai real estate developers will now be required to pay 100% of the land price in order to sell properties off-plan and will have to inject  a minimum 20% of the project value in order to commence construction.

Several contractors have also recently offered more flexible payment or delivery plans for buyers of off-plan projects. This step should be adopted by others in the industry as well. It not only protects the buyer’s investments but also makes sure the contractor has breathing room to finish and deliver the project.

Payment flexibility is adopted in most mature markets and we should achieve the same standards in Dubai as in other major centers around the world. This is a positive development and should hopefully continue once we are out of the current crises.