Future rental spikes will finally expand the home ownership base in Dubai
Dubai: Cost-conscious home buyers in Dubai better have their funds ready — homes under Dh2 million are not staying unsold for long. And in the home finding rush, former tenants are switching to becoming landlords.
And if rents in Dubai continue to remain stuck on a high without a clear rationale, it will only force more of them to finally take the plunge into home ownership … with a little help from banks. If that happens in high numbers, existing landlords will only have themselves to blame.
“There is an abundance of evidence that suggests greater home ownership levels — from rising mortgage purchases (up from 20 per cent of overall transactions in 2011 to 50 per cent in 2016) to lower resale stock in developed and developing communities,” said Sameer Lakhani, Managing Director at the advisory firm Global Capital Partners.
“We are also seeing a much lower tendency of flipping.”
The overnight queues that formed for the launch of the Emaar South and Dubai South sales also bear testimony that more city residents are getting comfortable with the idea of buying a home. The prices on offer then also represented the first time that unit prices were close to what developers used to have in the pre-freehold boom days in 2002-04.
In its recent Dubai real estate update, Core Savills notes: “We expect the continuing interest from investors to capitalise on the bottoming market, particularly for high yielding districts and the mid-market segment within the price range of Dh800,000-Dh2 million, to push transaction activity upwards.
“Off-plan apartment projects in Jumeirah Village and Dubai Sports City, especially those nearing completion, are enticing end user occupiers as both these areas offer projects with better facilities and larger layouts.”
If buyers are indeed going for off-plan, it could be another two to three years before they are due for delivery. More favourable bank lending has smoothed the buying process, but borrowers will soon have to confront the fact that interest rate payments are going to head upwards. Plus, any continued softness in the job market — compounded by large-scale layoffs at blue-chip businesses — will be a dampener on buyer sentiments.
But if prospective buyers are willing to overlook these concerns, where should they be looking — off-plan or ready properties? There is no one answer fits all solution to this particular buyer dilemma.
“The difference between ready and off-plan for end users ultimately boils down to the price and payment plan incentives that are offered at each income level,” said Lakhani.
“With luxury property prices still softening in areas where communities are more developed, there appears to be a greater demand for ready property. This is further reinforced by the fact that the gap between ready and off-plan prices in these communities are minimal … and in many cases are higher in the off-plan space).
“In areas which are developing but where developers are offering generous post-handover payment plans and/or attractive prices, there appears to be as shift towards off-plan purchases as end users factor in the pace of development. They appear more willing to wait as prices appear attractive even after the rental rates to be paid are factored in.”
Apart from Dubai South, other locations where a sub Dh2 million relatively larger property could be offered by developers include Sports City, Dubai Production Zone (formerly IMPZ), some of the Dubailand areas, and even freehold-designated locations in Mirdif.
“The land costs are only one part of the numbers that developers have to keep an eye on before committing to mid-priced properties,” said Sailesh Irani, Director at Sun & Sand Developers. “Here, construction costs swell to three times and over as part of the overall development expenses. That’s what developers need to worry about.”
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