Harbor Real Estate Blog

Dubai off-plan unit sales pick up
Units near completion and in good locations are being snapped up, but a lack of finance still hampers sales.

Residential towers at Dubai Marina. Buyers are waiting for the market to bottom out further before investing in off-plan properties. (DENNIS B MALLARI)
Limited off-plan sales activity is being recorded in Dubai especially for properties in a good location and for those nearing completion, real estate experts said.
Although the off-plan market continues to be challenged by factors such as lack of finance by lending firms, project delays and high prices, realty professionals said ‘off-plan’ sales activity has picked up in Dubai, from being a totally ‘dead market’.

Better Homes recorded five per cent of its overall sales in the last month for properties close to completion. Liz O’Connor, Director, Residential Sales and Leasing, Better Homes, said: “Five per cent of our sales in the last six months have been off-plan but these have all been close to completion. Further, these off-plan properties we sold were mostly apartments in Dubai Marina close to completion.”

She added that so far, Better Homes has sold single off-plan units in various developments in Dubai. “We have not seen more than one transaction at a time.”
Hesham El Far, CEO, Coldwell Banker, said: “Around 15 per cent of our overall monthly transactions can be attributed to properties nearing completion. Off-plan sales transactions are mostly a second sale being purchased largely by cash buyers since mortgage is practically nil for these properties.”

He said that potential off-plan buyers needed to be convinced there was on-going construction activity on site with a good contractor on board. “If a property is more than 70 per cent completed and is in a good location, then buyers are going ahead with buying the off-plan property.”

Mohanad Alwadiya, Managing Director, Harbor Real Estate, said: “Over the last 15 months, there has been a general consensus that demand for the ‘under-construction’ or ‘off-plan’ projects has totally dried up, both from domestic buyers and from overseas investors. However, it appears that the worst might be over, as we have started witnessing an increase in demand for off-plan properties and have even concluded a sizeable number of transactions for projects under construction or nearing completion.”

“During the last year, we sold 77 units that were still under construction in Jumeirah Lake Towers (JLT), Dubai Marina and Dubai Investment Park (DIP), Business Bay and Dubai Land.

Flexibility needed

“There is no doubt that the first quarter of 2010 was far more promising than the first quarter of 2009. Things are changing quickly and there is definitely an increase in market activity. Having said that, developers and off-plan property owners in Dubai will not be able to achieve off-plan sales by simply reducing their prices alone.”

He said that a successful representation of owners of off-plan properties requires a creative and fresh approach to selling these properties. “Developers or owners must apply a lot of flexibility to ensuring that their properties are being repackaged in a unique and attractive way that appeals to the current lucrative demand pockets.

“Unfortunately, a lot of agents and owners use price reductions as a way of making these properties more attractive. From experience, this approach alone doesn’t and will not yield success. Added-value ideas and creative packaging, along with institutionally addressing all the fundamental concerns buyers today have against off-plan properties, is the best way to marketing and selling off-plan properties in Dubai.”

Noura Yassin, Director and Head of Valuation and Consultancy Department, CB Richard Ellis, said: “There are transactions for units that are nearing completion. Some of those off-plan sales could be a result of a swap or consolidation of units.”

“However, I am not aware of that many off-plan properties selling now, mainly because there is no finance available for off-plan sales. Also, developers have put these projects on hold and are offering consolidation options and swap options for their clients,” said Yassin.

Sana Kapadia, Vice-President for Equity Research at EFG-Hermes, said: “There seems to be a trend towards buying completed properties and some interest in soon-to-be-completed ones. However, very few are selling off-plan units at this stage. Transactions are at the secondary level.”

Meanwhile, Linda Mahoney, CEO, Better Homes, said the limited off-plan activity recorded by her firm has been with respect to properties that will be completed in the next three months. Better Homes also said the off-plan activity in Dubai is currently concentrated in some areas, especially the Dubai International Financial Centre (DIFC).

Tom Bunker, Investment Sales Consultant, Better Homes, said: “Off-plan activity that is taking place right now is of stock that has yet to be delivered in DIFC and stock from premium developers whose properties are a month or so away from completion.”

Trust low at present

Bunker said it all depends on who the developer is and by how much the seller is willing to lower his price. “Recently we had a client looking for a unit in Emirates Financial Tower, but as he was not assured as to when the project would be handed over, and was not prepared to pay 2007 prices for stock delivering in 2010, he backed away. In Dubai Marina, Emaar has stock being handed over now in Marina Quays. It is only now that people are asking about the project. A month back, people made enquiries but held off until Emaar came through with delivery.”

Bunker added that the off-plan market continues to be challenged with investors still not trusting many developers. “Many worry that facilities will not come through within the developments and as a result, will also delay handover of off-plan projects. Those developers who seem to be on a solid footing could find themselves without financing which would also delay the project.”

El Far said: “Sometimes when we see some off-plan developments in a good location being developed by a good developer, then we tend to sell it. Like Infinity Tower is very competitive for the time being. The prices are currently Dh1,400 per square foot to Dh1,500 per sq foot.” He added some Emaar properties in the Greens area have seen some off-plan activity largely from end-users and a few investors.

According to Alwadiya, there are some great deals for investors today, as long as buyers take a long-term perspective. “Many potential buyers are waiting for prices to bottom out. Determining the bottom of any market in any recessionary cycle is problematic. By the time buyers feel they have spotted it, some real opportunities have gone. Those who do well in these times proactively and bravely seek out the opportunities and don’t merely rely on reports or market rumours which often work on averages and advertising listings that are not always up-to-date or accurate.”

Financing difficulties

Bunker said banks are not touching off-plan properties and those that are mortgaged, are not re-financed even if they are sold. “Further, the mortgaged properties are so over-priced that no one would sell one today as the loss would be too high for them.”

“Even if they cut the selling price by half, the bank still needs the full price to pay off the mortgage and not many people can afford to pay off the balance. These properties were bought two to three years ago during the boom time. Nothing will help off-plan products until enough time has gone by so that prices can rise,” he said.

Meanwhile, EFG Hermes’ Kapadia said locations that are doing well are established communities such as Emirates Hills, Downtown Dubai and Dubai Marina where tangible community life is offered, rental demand is in place and location is viable. She however warned that new supply of off-plan properties expected on the market would put further pressure on rental rates and prices.

Mahoney added that if Dubai does not record an increase in population and in the setting up of new businesses, off-plan sales (OPS) would likely be further affected. She said time will be the factor that will help off-plan sales as confidence returns to the market. She added that off-plan prices have dropped by an average of 50 per cent over the past 18 months.

Yassin said almost all developers had to revise their selling prices, not only on off-plan properties but also on those that are completed. “However, prices of off-plan sales were the most to fall as finance is practically not available.”

Incentives needed

Yassin said developers have to consider lowering their selling prices and offering more incentives. “Further, finance needs to be available with easy payment instalment plans. Developers will need to offer the market new products, consider designs and give incentives to their clients. Prices will be affected across the board due to oversupply in comparison to demand. Further, banks are still conservative in providing mortgages and if they do, the terms are seen to be difficult and rates are still high.”

Bunker said: “For the most part, on projects being developed by the larger and more dependable developers, all of the stock had already been sold, so the developers didn’t have to adjust any of their pricing. But those who bought the product off-plan did. It didn’t matter that they reduced the price even to the point of making significant losses, but the market still refused to buy.

“As an example, there is a property in Business Bay that is being viewed by potential buyers where prices have dropped considerably. But they refuse to act on the deal until they at least receive word from the developer on the expected delivery date. Even a significant drop in price will not convince a buyer to buy an off-plan product today.”

Kapadia said liquidity was an important factor along with a clear and transparent regulation to surge the off-plan market.

OFF-PLAN AND WHAT IT ENTAILS

According to Law No (13), 2008 regulating the Interim Real Estate Register (off-plan properties) in Dubai, an off-plan sale is defined as ‘the sale of subdivided real estate units off-plan or under construction or not yet completed’.

Stephen Kelly, Senior Associate, Real Estate, Clyde & Co, said: “In this region, off-plan is a reference to a sale of an uncompleted property where work is still required to be undertaken by the developer before handover. On this basis, the sale of a unit within a building probably ceases to be ‘off-plan’ once the building works have been completed and a building completion certificate has been issued by the relevant authorities.

“One of the most important legislative changes that will affect ‘off-plan’ sales is expected to come once the implementing regulations are issued under the Jointly Owned Properties Law (Strata Law).

It is expected that developers selling ‘off-plan’ will have to provide purchasers with a ‘disclosure statement’ at the time of sale that sets out full details of the development.

Further, it will be expected that the developer will also be required to provide an estimate of the service charges that will be payable by purchasers in the first year after handover.

As the developer will be liable to the purchasers if the information in the disclosure statement is not correct, this requirement will further protect consumers entering the ‘off-plan’ market.