Cityscape: Off-Plan Buying Back In Dubai’s Property Market

Speculative buying will continue in Dubai, but the emirate’s property market is much better regulated now, experts at Cityscape have said. Rampant off-plan property buying by speculators in Dubai’s property market before the financial crisis was one of the main reasons that the emirate’s real estate market crashed in 2008/2009,with prices dropping upto 60 per cent.

But the positive reaction to the two recent off-plan projects announced in Dubai proves that interest has returned to the segment.

Emaar’s latest project, The Address The BLVD, sold all of its serviced residences on the first day of sale. Long queues of people also reportedly waited to buy Nakheel’s Jumeirah Park Legacy villas earlier this week.

“I think the people who are investors in the off-plan market must have learnt lessons [from the financial crisis]because some of those people were affected badly by the downturn in pricing,” said Nick Maclean, managing director at CBRE Middle East.

“But the evidence over the last couple of weeks over schemes that were available clearly shows that there is an appetite for off-plan purchases. It’s very important for the development market too because it’s a primary source of funding for developers so without that in the market, some schemes just wouldn’t be feasible,” he added.

Dubai-based Deyaar doesn’t have any off-plan projects at present, said Nasser El Din Aly Amer, the developer’s vice president in Dubai. “But there is interest in the sector from investors.

“What happened before the crisis is completely over. Developers can no longer just get a piece of land, print a couple of brochures, go to the market and sell.

“Off-plan selling is subject to RERA approval because they link the payment plans and the way you sell to the construction percentage – so you can’t take 40 or 50 per cent from investors when you are not off the ground,” he said. “It’s much better regulated now.”

According to Maclean, the government is also looking at ways to ensure that people who buy off-plan are end users.

“This way ‘flipping’ is reduced, but at the same time we do not get rid of it completely because speculators in the market make the market work. But we need it not be rampant.”

Ziad El Chaar, managing director of Damac Properties, said that speculators are part of any market in the world. “People who are after short-term gains are everywhere but because of the real estate laws in Dubai, the market will not witness the same level of speculation as before 2008.

“Dubai has some of the most protective laws for investors. Today, for a developer to launch a new project, you need to own the plot in full, take handover of the plot, get the construction permit, get the approval from RERA(Dubai’s real estate regulatory authority) and either build 20 per cent of the project or deposit in escrow 20 per cent of the value of the project before you begin development. All the money from investors also has to be deposited into escrow.

“But because these laws were enacted in August 2008, right before the financial crash in September, people did not pay attention to them,” he added.

Another important factor for off-plan selling is the credibility of developers, said Aly Amer. “The brand equity of the developer and the credentials they carry make a big difference.

“There is nothing wrong with off-plan as long as you are offering the right product at the right price in the right place and you have clarity on who is your client,” he added.