Soaring materials prices and global supply chain challenges are posing risks for developers in Dubai and could hamper completion and delivery of property projects, consultancy firm Asteco said in a new report.

Dubai's property market has recently seen a slew of project launches as developers look to cash in on strong investor demand. 

This year's launches include DAMAC Properties' twin-tower development, Safa One on the edge of Dubai's Safa Park, and Al Futtaim Group Real Estate's residential mid-rise tower complex that promises to feature 350 homes.

"These launches have been made in the wake of a renewed optimism in the real estate market," Asteco noted.

"However, rising construction costs and supply chain issues represent increasing risks for developers and will likely result in delays for projects," it added. 

The delays are expected for developments that are at pre/early stages of construction. Projects that have already progressed well, however, are not likely to get impacted much by supply side constraints.

In Dubai, the Construction Cost Index 2022 went up by 2.77% during the first quarter, with the materials cost rising by 4.81% year-on-year, according to Dubai Statistics.

Supply, handover

By the end of the year, Asteco estimated that approximately 25,300 apartment units, including 22,000 apartments and 3,300 villas, are expected for handover.

So far, new residential units have been added to Dubai's residential stock, with around 7,000 apartments delivered during the second quarter, up from the 6,000 units completed in the first three months of 2022.

Villa handovers also doubled to reach 520 completed properties.

More buyers are also looking for off-plan units, with demand in the segment growing significantly during the quarter. However, Asteco noted that rising borrowing costs and lack of affordable homes in the secondary market have started to "squeeze out" investors that have limited capital.

"Developers are expected to revert back to more flexible payment plans to avoid losing out on end-users and first-time buyers, who made up a large percentage of investors over the last couple of years, particularly since the traditionally transient Dubai population is increasingly

adopting a long-term view on living in the emirate," Asteco said.

Sales prices for residential units edged up slightly by 4% in the second quarter compared to the previous three months, bringing the year-on-year increase to 20% for apartments and 26% for villas.

(Reporting by Cleofe Maceda; editing by Seban Scaria )