Off-plan sales lead the way in Dubai property, report says

Over supply anticipated in the lower end segment, according to Core Savills Dubai Residential Market report - Q3 2017
Off-plan sales have led the way in the Dubai property market in Q3 2017, with investors accounting for most buyers, particularly in the below AED1m ($272,257) price point, according to a report by UAE real estate firm Core Savills.
By Lubna Hamdan
Tue 17 Oct 2017 12:32 PM

Off-plan sales have led the way in the Dubai property market in Q3 2017, with investors accounting for most buyers, particularly in the below AED1m ($272,257) price point, according to a report by UAE real estate firm Core Savills.

Research showed off-plan sales increased by 62 percent compared to YTD 2017 figures to the same period last year, while ready units sales increased by just 7 percent, which were largely driven by end-users

Despite the spike in off-plan transactions, the average unit value has dropped by 11 percent since last year. Core Savills chief executive David Godchaux said this might be due to some developers adjusting prices by offsetting quality or shrinking their margins.

“This brings a significant amount of lower quality stock to the market which may find short-term investor take up on the back of lucrative payment plans, sometimes aided by the high level of marketing spends. If sales and tenant demand for such products has been overestimated, this may not be sustainable in the long term,” he said.

The report stated the growing off-plan market also affects the ready sales market, with individual landlords lowering sales prices to keep pace with off-plan projects, consequently reducing the area average and slowing down recovery.

While the handover of new villas has raised average prices by 2 percent in areas such as Dubailand and Arabian Ranches, prices in villa districts Jumeirah Islands and Jumeirah Park have dropped by 6 percent.

Few large sales of new or refurbished villas on the Palm Jumeirah saw its average prices decline by 2.5 percent, though prices rose 2 percent in luxury villa district Emirates Hills.

Dubai Marina also witnessed a marginal drop of 2 percent for ready unit sales due to increasing competition from off-plan apartment deliveries launched at higher entry points, which drove many investors to opt for ready units at lower prices, according to the report.

Rent has been decreasing across the city throughout 2017, with prices in Dubai Marina and the Palm Jumeirah performing the worst at 10 percent year-on-year price drops.

The report said lower income occupiers are still hesitant to buy, while investors remain interested in off-plan sales despite competitive prices.

However, it suggested an imbalance of affordable property supply, which does not fit the requirements of potential end-users. While investors are interested in studio and 1-bed units, end-users are looking for smaller 2-bedroom units at similar entry prices.

Godchaux expects the imbalance of offer and demand to put pressure on price and rental recovery in outer areas.

“Although actual handovers may vary substantially from expected supply figures and even with stronger regulations in place, we remain very cautious about the possible risk of oversupply in the lower end of the market building up more systemic risk in the outer areas,” he said.

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