Is too many off-plan launches a good thing for Dubai?

New project launches in Dubai continued unabated during the first half of 2017.

Sixty-eight new projects worth Dh21 billion were launched during this period in Dubai as per data from the Dubai Land Department. These new launches are the latest addition to what is already a significant residential supply that is expected to hit the Dubai market over the next four years.

The growing pipeline of new projects is something that needs to have a close eye kept on it. However, a number of new project launches seem to have been quite well-absorbed into the market. The first half of 2017 has witnessed a high volume of transactions, particularly in the off-plan residential property segment. While the decline in property prices of completed units has brought buyers back to the market, the smaller unit sizes, attractive price points and payment plans in the off-plan market have attracted first-time buyers.

Supply in freehold areas

As per the Project and Supply Tracker by Property Monitor, approximately 25,000 apartments and 6,000 villas/townhouses are estimated to be completed before the end of the year in Dubai. Most of this new supply will be in communities such as Dubai Marina, Jumeirah Village Circle and Dubai Sports City. The supply estimated for next year is even larger, with 36,000 apartments and 5,000 villas/townhouses expected to hit the market. A significant proportion of this new supply will be in Damac Hills, Dubai Sports City and Remraam.

As we move into 2019 and 2020, the action seems to shift from the established communities to the newer ones currently under development such as Mohammed Bin Rashid City (MBR City) and Dubai South. Approximately 3,600 units are estimated to enter the market in Dubai South in 2019. More than half of the 13,500 units estimated to be completed in 2020 will be in MBR City.

Supply in GCC-only freehold areas

The upcoming supply in the GCC-only freehold areas such as Deira, Bur Dubai and Barsha will also be a key factor in the dynamics of the freehold residential sales prices and rents. These locations are getting a much-needed facelift due to concerted efforts by the government and large developers such as Nakheel, Meraas and Wasl Properties. Deira Islands and Marsa Al Seef are some of the landmark projects that are currently underway. A number of local family holdings are also actively developing their large land banks in the GCC-only freehold locations.

Demand for off-plan properties

The decline in property values over the last two years and the result in the lowering of launch prices for off-plan properties have ensured that the demand is quite strong. This can be observed in the increased volume of transactions in the off-plan market. According to Property Monitor, the total number of off-plan transactions year to date in 2017 has already surpassed the corresponding number for the whole of 2016. Assuming that this trend will continue until the end of the year – a reasonable assumption to make as we approach the traditionally busy period – the total number off-plan sales in 2017 can reach as much as 25,000 units.

However, the real test for the Dubai residential market is if it can sustain the current momentum beyond the end of the year, leading up to Expo 2020. New supply entering the market has already had a softening effect on rental prices and will likely continue to do so as more supply comes in. Declining rentals will impact the yields, which is why it is difficult to see increased sales volumes having a big positive impact on property prices.

Khaleej Times
Sathya Srinivasan/Dubai
Filed on September 5, 2017
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