It’s not just rents that are dropping because of all the new homes being delivered and launched in Dubai.
Property owners wanting to sell now find they are getting nowhere near their asking prices because there are brand new properties – ready and offplan - being offered by developers with post-handover payment schemes, Land Department fee waivers and lock-in service charges for extended terms. And if need be, developers can even get mortgages approved for the buyer.
Against such incentives, individual owners planning to sell find they have limited room to manoeuvre. Sure, they can drop their prices even further and hope the buyer is willing to take the bait. But what it means is that more owners are forced to sell their property at prices much lower than what they had bought for.
This has been the case in all areas where new homes are being delivered in significant numbers, and applies to properties across all price and category types.
According to the real estate consultancy Cushman & Wakefield Core, sales prices have “softened across the board”, with apartment prices in locations such as Dubailand (down 15 per cent), Sports City (a drop of 13 per cent) and Discovery Gardens (lower by 14 per cent) in the last 12 months.
Even upscale Downtown Dubai recorded dips of 12 per cent on apartment prices “from existing and upcoming stock”. In the case of villas, those in Jumeirah Park have seen an 18 per cent value drop during the period.
Cushman & Wakefield Core estimates that nearly 22,000 new homes were handed over in 2018 in the various freehold locations, which makes it the highest tally since 2011. “As more stock comes to the market, the older built stock is unable to retain its novelty,” said Prathyusha Gurrapu, Head of Research and Advisory at Cushman & Wakefield Core.
“Occupier preference is shifting – both for rentals and sales - to newer stock that is increasingly becoming available at lower entry points. Developers within major master-communities continue to bring new stock at lower entry points and offer pre- and post-handover payment plans that directly compete with existing secondary market stock.
“(This forces) individual property owners to try and keep pace with reduced prices. Depending upon when an individual property owner has bought the property, and whether the transaction was in cash or mortgage, they might be looking at a loss of equity.” In other words, selling at a price lower than what they bought it for.
In its latest report, the consultancy Cavendish Maxwell reckons that average trading prices for apartments were at Dh1.2 million during the fourth quarter of 2018, while on villas, it dropped from Dh2.3 million at the end of 2017 to around Dh1.8 million.
What it means is that sellers in the secondary market have had to readjust their expectations accordingly. A check of property listing sites indicate that any property that is deemed at having too high an asking price is going unsold or the seller has had to revise his demands, at times more than once.
Buyers have other options too. “A certain segment of secondary sellers have adjusted their pricing, but there is also a significant portion who have decided to hold on and resorted to renting,” said Saygin Yalcin, Chairman of Sellanyhome.com. “The pressure on rentals has been fuelled by downward pressure in the sales market. This has ultimately benefitted the end consumer in the rental space than in sales transactions."
“Yet, while a certain segment has adapted a wait-and-see strategy, cash-rich buyers are enjoying favorable purchase conditions and betting on capital appreciation in the coming years.”
Developers are responding with launches with price points that today’s budget-conscious buyers favour. And there are already quite a few options available for cash buyers… or even those who plan to take the mortgage route.
Emaar has released three- and four-bedroom villas at Dubai South in the price-sensitive Dh1 million to Dh1.4 million range. Dubai Holding has pegged its prestige Madinat Jumeirah Living homes in Jumeirah - and a few minutes from the beach - at Dh1.25 million for a one-bed and going up to Dh5.3 million for a four-bed.
If developers themselves are offering all sorts of price options, there is not much individual sellers can do in the current marketplace beyond lowering their expectations.
Price points head lower in Dubai property deals Sure, there have been the Dh90 million transaction on an Emirates Hills villa, Dh62 million for a seven-bedroom penthouse on the Palm, and Dh60 million on a beachside Bvlgari home by the beach. These were among the priciest deals for residential property last year.
But in the market as a whole, the size of average transactions is coming down - 26 per cent of offplan transfers for apartments in 2018 were in the Dh1,200-Dh1,500 per square foot price bracket, according to the Property Monitor data from Cavendish Maxwell. “In the case of villas, 59% of the total offplan transactions were in the range of Dh500-Dh800 a square foot.”
“Price movement in the last 12 months has varied between communities as well as among different buildings within the same community, thus reflecting greater differentiation in how available properties were traded. This differentiation is expected to continue in 2019 as buyers have increasing supply options to choose from, with property fundamentals such as developer track record, proximity to social and public infrastructure, ease of access and maintenance, among other factors, driving price movement.”
With the rental market in correction, one would have thought landlords would be more than willing to ease tenants’ payment concerns. But as per the Property Monitor’s database, the majority of rental agreements on residential properties in 2018 were by single cheques (43 per cent of total), and which actually increased by 14 per cent compared to 2017. And rental payments made using four cheques decreased by 23 per cent over last year.
