Property sellers in Dubai need to offer more to close deals
Right now, developers with off-plan sales are grabbing a dominant share of buyers
Property sellers in Dubai have a fight on their hands if they are trying to find buyers now. Because these days, developers with off-plan sales are coming up with more competitive pricing and incentives that individual sellers cannot even think of matching.
This explains why off-plan sales had one of its best runs during 2017 while secondary market transactions continue to lag at some distance. There are also an increasing number of cases where individual sellers have had to pull out their listed properties because of a lack of demand in the secondary space. Or because they were getting buyer offers that were nowhere near their asking prices.
These sellers can only blame developers and their off-plan programmes for their plight. “Developer financing with post-handover payment plans is effectively subsidising off-plan sales and propping up the volumes,” said Jesse Downs, Managing Director at Phidar Advisory. “These are available to almost anyone and without the paperwork or delay. If these payment plans continue to be offered, this will likely prop up the primary market relative to the secondary.”
So, is there no option for individual sellers? Or do they need to cut their asking prices even further to get potential buyers even remotely interested?
“The only way to compete is through reducing price … or improving and differentiating the product quality — for example, capital improvements through renovation,” said Downs. “But it would be difficult for sellers to offer incentives to directly attract buyers from the primary to the secondary market because the appeal is two-fold — the payment plan and the newness of the product. And sub-optimal maintenance is leading to depreciation of completed assets.”
According to Downs, better sense dictates that sellers should spend on refurbishments, typically involving the kitchen or bathrooms “because these are the more complex and value-add spaces of a home”.
“The other rooms are often empty boxes … so refurbishment is usually a coat of paint. Flooring is usually ceramic, porcelain tile or wood, which if properly maintained has a 25-50 year life cycle depending on the specification.
“In other markets, vinyl and carpet may be used, which has a far shorter life cycle.”
But sellers need to also keep mind other factors. “Sometimes, the challenges can’t be mitigated because of congestion-based infrastructure limitations in the area,” Downs added. “Depending on the situation, it may be sensible to simply reduce the asking price and exit.”
As such, since November, property sales in Dubai have gone through a bit of softening. Last month’s apartment sales volumes are down 32 per cent on a year-on-year basis. And between September and November, the volumes are lower by 22 per cent from the year ago total, according to Phidar data.
The property consultancy reckons that prices too will remain under pressure, citing slow job growth and “over-building” in the mid- to high-end residential space. “Since September, prices for completed properties — even in well-established communities — have declined,” said Downs. “We think this will continue through 2018.”
Factbox: Home rents to remain under pressure
The first rental declines happened at the top end of Dubai’s residential market. And now it is starting to spread across less expensive rental categories as well.
“Rents will likely continue to decline on the back of new handovers and weak demand,” said Jesse Downs of Phidar. “Especially for housing built for the mid-high to high (aimed at households earning about Dh25,000 or more per month). The majority of products is targeting this demographic.
“Rents will continue to decline at a gradual but steady pace until we see evidence of job growth or a significant slowdown in stock expansion. The problem is not the new handovers because it is growing at a moderate pace. The problem stems from the high rental inflation in 2012-14 — the market is now correcting this because the rents reached were simply not sustainable over a long period.”
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