| 11 October, 2017

In Dubai, off-plan prices take the lead on ready property

Locations such as Dubai Marina, Business Bay and JLT see a significant gap building up

Image used for illustrative purpose. 
The Dubai Business Bay skyline. United Arab Emirates, Middle East.

Image used for illustrative purpose. The Dubai Business Bay skyline. United Arab Emirates, Middle East.

Dubai - Those bargains in Dubai’s off-plan property sales seem to be disappearing. In fact, this year, off-plan launch prices are gaining against those on ready properties, and more so in Dubai’s prominent freehold clusters such as the Marina and Business Bay. And at the Downtown, the gap between ready and off-plan pricing is narrowing by the day.

This is quite a contrast to the norm in the property markets anywhere, whereby ready properties always carry a premium on pricing because investors can take immediate possession and not wait for a good two to three years as is the case with something that’s selling on off-plan.

Her are some examples from the recent price performances in Dubai’s prime investor destinations. At Business Bay, the current average off-plan price is pegged at Dh1,625 per square foot (psf) against the Dh1,414 psf that it would cost someone to buy a ready unit, according to data from GCP-Reidin, the consultancy.

At Dubai Marina, based on end 2016 numbers, the average for off-plan was Dh1,968 psf against Dh1,528 for ready. At JLT (Jumeirah Lakes Towers), the launch prices for two recent tower launches — the Taj Residences and another from IGO — were averaging Dh1,500 and Dh1,250 psf respectively, GCP-Reidin finds. That is against the Dh1,210 psf for ready in JLT.

As per available data, the exception seems to be the Downtown, where the off-plan average is Dh1,922 psf against ready’s Dh1,979. But in 2016 and 2015, off-plan was selling at a higher price than ready.

“With the stretched payment plans that most Dubai developers are offering, they would want to do so at a higher launch price per square foot,” said Sameer Lakhani, Managing Director of Global Capital Partners. “Not doing so would cut into their operating margins significantly.

“That’s probably the only reason why off-plan prices in key locations are commanding a higher price than ready.”

According to GCP-Reidin, in Dubai Marina, the gap between off-plan and ready has increased “primarily because the latest launches have predominantly been in the hotel and serviced apartment category”. Also, there is a higher variability in the build quality compared to Downtown and Business Bay.

“In community after community, prices have actually risen,” said Lakhani. “These have been accompanied by incentives — post-handover payment plans and in the case of private sector developers with guaranteed returns.

“These distort the reality of launch prices in certain cases, but certainly among the larger developers, there has been a creep up in launch prices. And for the most part they have been absorbed.”

In particular, demand has been significant in the hotel/serviced apartment category located in the upmarket areas. And in emerging areas like Dubai South, there has been a surge because of the product being priced competitively.

When it comes to land alone, Dubai South plot prices could be in for some sharp appreciation given the demand that already exists. Currently, they trade at Dh120-Dh150 a square foot.

Land prices that are lower than these include areas like International City and parts of Dubailand. The plot prices vary depending on FAR (floor-area ratio) and BUA (built-up area).

Within Dubai’s freehold clusters, prices are all over the place

Even with Dubai’s freehold clusters, there is no such thing as a uniform pricing.

For instance, on the Palm’s Shoreline buildings, the road-facing units come at a slight discount to those that get to open up to a sea-facing view, states the new GCP-Reidin report.

“We can see that main road-facing buildings trade lower by Dh186 per square foot compared to the community mean, whereas sea-facing units are at a premium of Dh207 psf,” the report notes.

Across communities, these variances are being played out. At The Views, located next to The Greens off Shaikh Zayed Road, buildings completed after 2012 trade at a premium of Dh121 psf compared to those built before 2007.

“Buildings completed pre-2007 are at a discount of Dh146 psf — this differential in build (and in certain cases height) factors have shown up systematically in the data,” the report notes. “The predominant variable that is at play here appears to be the time of completion, although certain other factors such as golf course views and proximity to the school also are responsible.”

At JBR, buildings at the front of the cluster — and many of them among the first ones built — trade at a premium to those with obstructed views. Since 2012, buildings in the front trade at a premium of Dh88 psf to the community average.

In general, “Preferences such as pedestrian access to schools and less noise pollution — alongside a greater demand for serenity and green patches — should assist in guiding investors in gauging demand in other communities across Dubai,” the report states. “As the end-user bandwagon continues to gather pace, such qualitative factors will come to the fore. And it is only in the scrutiny of such behaviour will investors be able to determine superior investments from the sub-par ones.”

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