What is the current market situation and how is it affecting the overall dynamics of the industry? All you need to know regarding offplan investments and its future outlook in the UAE.
UAE’s offplan property market forms the backbone of the real estate industry. In recent years, this market has been exposed to multiple risks related to project delays, quality concerns, market risks and global economic changes. However, buying offplan property does come with its rewards and incentives. Off-plan property enables investors and buyers to purchase property at a lower price in a rapidly growing market. According to ‘The National’, developers usually offer 10% to 30% lower prices for off plan and under construction properties.
Dubai has been an attractive real estate hub in the eyes of the world; with endless new commercial and residential developments added to its palette each year. This makes it one of the fastest growing metropolitan cities in the world. In recent years however, the UAE real estate sector has, been witnessing an unstable surge; however, experts predict that the second half of this year looks optimistic. Having avoided a bubble in 2015, and getting past a slowdown last year, the UAE property sector has done comparatively well. According to real estate consultancy, Cluttons- a slowing rate of decline across all sectors of the Dubai real estate market suggests increasing stability and the expectation of the market ‘bottoming out’ before the end of 2017.
In today’s market, there are more new buyers, than ever before. This growth in demand is attributed to two main factors- flexible payment plans and changes in target market. According to a report by Global Capital Partners-Reidin, report- The H1 trends for off-plan property sales in Dubai rose by 58%, in the first five months of 2017 compared to same period last year, in 2016.
Business professionals on stable incomes are highly attracted to invest in off plan properties because this allows them to gain maximum capital appreciation through back ended payment plans, where the buyer pays 1-2% as monthly installments. Post-handover payment plans are more lucrative from the investor’s prospect as they would start reaping returns before having to pay 100% on their property purchases. The flexibility in 30/70 payment plans is that end-users are able source personal loans of up to 30% until the property is ready, and in the meanwhile pay off, the personal loan before they can obtain a mortgage for up to 75% upon handover from any local bank.
Rizwan Sajan, founder and chairman of Danube Group, comments that developers have to be innovative with their offerings in order to grab market share and the attention of potential buyers. Developers are offering extremely irresistible post-handover payment plans and experts fear that this lead to another property bubble in the UAE.
The increase in the number of affordable projects is another factor contributing to this growth. Communities which are regarded as elite in Dubai are now introducing affordable options for buyers such as Bayz in Business Bay and Green Diamond in Arjan. Further more, new areas have opened to the consumers such as Serena and Villa Nova, attracting more end users to the market, by giving them multiple options to choose from.
Change in target market, has also affected the dynamics of the industry. Previously the off plan scenario was such that, only people with deep pockets could invest. But now people who have security and are on fixed monthly salaries can invest as well. According to Dima Isshak, head of research and advisory at Chestertons, ‘the buyer profile today is very different from the historic type, which consisted of- foreign buyers, flippers and bulk investors’.
Developers have traditionally overestimated the completion of projects in Dubai. If the project deliveries are delayed, the industry will be negatively affected by an increase in project prices. Property consultancy JLL says, ‘residential supply will increase by 4% per year between 2017 and 2019, compared with an average of 3% per year in previous years’. Unlike the heady boom days prior to 2008, off-plan payment schedules these days are directly linked to construction milestones so the part of the risk relating to delayed handovers are somewhat mitigated.
There are many reasons why buyers from around the world still find Dubai an important investment and residential abode. The reasons behind this include factors such as multiple property choices, safe and secure atmosphere, business opportunities, diverse work and living environment and not to forget the cliché tax free economy. This temporary slowdown does not stop renowned property developers, and the big players in the market to take upon and deliver ambitious projects. Upcoming landmarks and global events such as the Dubai World Central (DWC), Al Maktoum International Airport and Expo 2020, are good examples of the markets positive sentiments and future prospects.
There is new traffic coming into Dubai every year, and the figures are just accelerating. According to Dubai Airports CEO Paul Griffiths- “The two airports in the city will see around 126 million passengers by 2020”.
More people visiting, translates into high demand especially in the hospitality sector, which indirectly positively affects the real estate sector, since many of the luxury hotels offer hotel apartments options. The years leading to Expo 2020 will also result in generation of employment, more expat traffic and hence more residential property demand.
The positive outlook of the market is also due to conventional construction linked payment plans, where the banks offer different types of under-construction finance options. However, this is mostly limited to a specific list of renowned developers, on which the lender has completed due diligence.