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| 13 February, 2018

Post-handover payment plans in UAE to speed up project deliveries in 2018

Number of new project launches is likely to ease off in 2018

Foreign workers are seen at a construction site in Dubai, United Arab Emirates, November 13, 2006.

Foreign workers are seen at a construction site in Dubai, United Arab Emirates, November 13, 2006.

REUTERS/Ahmed Jadallah

UAE - There is likely to be a surge in property deliveries over the next few years as construction-linked, post-completion payment plans encourage developers to finish projects within the stipulated timeframes, estimates property consultancy Asteco.

"The number of new project launches is likely to ease off in 2018 as the market finds a new equilibrium," said John Stevens, managing director, Asteco.

It estimates 23,000 apartments and 8,500 villas are expected to be delivered in Dubai this year. But actual deliveries could be much less as has been the case for years now.

Sales prices and rents are expected to continue to come under pressure in Dubai with a more pronounced drop anticipated for the latter as a result of the sheer amount of supply projected for delivery this year.

Tenants now have the power to dictate terms to landlords. "There has been a steady rise in project completions, which has put the bargaining power firmly in the hands of tenants who have taken advantage of the increased choice and competitive rates to relocate to new properties or renegotiate existing contracts," Asteco stated.

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"Proactive landlords looking to secure new leases and/or retain tenants increasingly offered incentives including, but not limited to, rent-free periods of up to 2 months, increased payment frequency [up to 12 cheques] and all/part of the utilities absorbed," Stevens added.

The real estate services firm also believes the centre of Dubai continues to shift away from its traditional core (around the Dubai International Airport and along Sheikh Zayed Road) and towards the new Al Maktoum International Airport and the area surrounding the Sheikh Mohammed Bin Zayed Road, a move encouraged by ongoing infrastructure and development projects in the run-up to Expo 2020.

Investors are now more sensitive to the price point of properties as opposed to the price per square foot, meaning units that were previously advertised below the Dh1,000 per sqft mark will be marketed for instance at below Dh500,000 for studios or Dh1 million for one-bedroom apartments to entice take-up.

Although residential sales and leasing is generally exempt, the introduction of value-added tax will indirectly affect tenants and investors as the tax is applicable to items such as maintenance, utility and agency fees. However, given current market conditions, some of these charges are expected to be initially absorbed by owners and landlords.

Abu Dhabi
Rents and sales prices are expected to record moderate declines as a result of the continuous delivery of new supply during a period of moderate economic and market growth, explains Asteco.

Approximately 9,000 residential units, including 6,200 apartments and 2,800 villas and townhouses, are anticipated for completion this year, predominantly in Reem Island, Al Raha Beach and Yas Island. Based on previous years, the delivery of some of this inventory may be delayed until 2019.

Off-plan quality projects offering attractive sales prices and payment plans will continue to benefit from good demand.

Northern Emirates
The Northern Emirates will remain an affordable alternative for mid-income earners. However, the continuous delivery of supply in Dubai will hinder the recovery of rents throughout the emirates, specifically in Sharjah and Ajman, due to their proximity.

With the increase in new project launches, ongoing construction activity and the implementation of diversification initiatives, the Northern Emirates, notably Sharjah, are aiming to become less dependent on real estate demand from Dubai in the medium to long-term. However, in the short term, Dubai's real estate market sentiment will continue to affect rents and sales prices in the Northern Emirates.

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