Property developers in Dubai have resolved to live with COVID-19 by focusing on the timely completion of their projects while ensuring cashflow and maintaining safety measures mandated by the authorities at work sites.

Imran Farooq, CEO, Samana Developers, told Zawya Projects that the UAE authorities had introduced extensive precautionary measures for the real estate sector and its workforce.

"The challenge lies when authorities issue new Standard Operating Procedures like thermal scanning, social distancing, and permit to mobilise construction workers arranged by contractors, sanitation of all equipment, and we have to implement them on immediate basis. Moreover, a bus which carries 50 people as a standard seating capacity can only carry 15 workers now. For extra safety of workers on-site, we have taken an initiative of ordering the sterilisation tunnels for our projects," he said in an emailed interview.

He noted that most developers have also re-assessed their financial needs and cash flows to deal with the crisis.

He said: "We may have to make some adjustments with buyers, but we believe 85-95 percent payment will keep coming in, and our projects will be built on time. We already have calculated the situation and necessary funding has been arranged in case of a shortfall. As a developer, we intend to hold 20 percent of the inventory in every project. That inventory is put in the market, which generates additional cash flow."

At Damac, all the construction projects are proceeding on schedule, and no project has been delayed or halted, Niall McLoughlin, Senior Vice President?Marketing and Corporate Communications, Damac Properties told Zawya Projects.

"Damac's reluctance to offer 5 percent deposit-based payment plans and extended post-delivery plans means our cash position is strong. We are always prepared to sacrifice risky sales emanating from elongated post-handover payment plans," he said.

"Our profit will be affected by sales slowing due to lockdown measures. However, within our sales cycle we have aggressively moved to online servicing and now do lots of the sales process using technology like video conferencing and are seeing healthy activity during the recent months," he added.

Transaction trends

Taimur Khan, Associate Partner at Knight Frank, said that overall transaction volumes between January and April 2020 were up marginally by 0.6 percent, compared to the same period a year earlier.

"Over this period, off-plan transactions were up by 5 percent, and ready properties transactions were down by 5 percent," he said.

"Look at the property market anywhere around the world, for example. China's 30 major cities have seen transaction volumes rebound post lockdown. However, volumes in the year to May 5, 2020, compared to the same period a year earlier, are down 32.2 per cent. New York and London also have material declines in transaction volumes as they had been in the complete lockdown," he said in a telephone interview with Zawya Projects.

He also pointed out that the percentage changes between April and March in Dubai showed that ready transaction volumes were down 68 percent and off-plan volumes were down by 8 percent. "Ready property transactions are more impacted as a lot more paperwork is required in such deals compared to off-plan deals."

He added that many developers had done an excellent job of introducing technology to market their units. "As a result of these initiatives, off-plan sales have continued to progress. But with ready units, there is a lot more that needs to be considered at the time of buying."

Khan said developers should take advantage of current low-interest rates to avail potentially cheaper financing.

"Those developers that have solid sales pipelines, and cash flow, can potentially benefit by reducing their cost of financing," he said, noting that on the payment plan front, they would probably need to spread payments further.

Citing data from Reidin, he said: "The initial payment was already very low since the start of 2020, 9.1 percent at the time of signing your deposit, 27.8 during construction and 35.3 on completion and 27.9 post-handover, as a rough average. In the previous years, payment plans were spread a lot more during the construction period and the remaining balance on completion, but now we might see this spread out more post-completion."

Tailored deals

Vir Vijay Doshi, Director, Vincitore Real Estate Development said property buyers are interested in extended flexible payment plans, guaranteed return on investments, and investment protection.

He said: "We have developed multiple extended payment plans, with up to 80 percent payment post-handover and another with payment extended for 36 months post-handover."

"We have also introduced guaranteed returns on post-handover payment plans and guaranteed capital protection, ensuring that the value of the capital invested with Vincitore does not depreciate. Our guarantee is oriented towards protecting investor's capital from any market risk, giving them a 24 percent net rental guarantee and other benefits alongside."

Atif Rahman, Director and Partner, Danube Properties, told Zawya Projects that developers are prioritising project delivery.

"There are challenges, but the answer to all the problems is consolidating and reducing liabilities/exposures. Moreover, we offer extremely relaxed payment plans, so our instalments don't cause a hefty dent on the customers' pocket," he said.

"We have a decent pipeline, which is at a high priority in 2020 with three projects scheduled for delivery at a combined value of $299.4 million (1.1 billion UAE dirhams), including Bayz, Glamz and Miraclz. For 2021, we have a pipeline of four projects scheduled for delivery, including Jewelz, Lawnz, Elz, and Wavez," he added.

Demand and supply

Aditi Gouri, Associate Partner, Strategic Consulting and Research, Cavendish Maxwell, said business and financial concerns stemming from the pandemic have led to owners are selling their distressed properties at an average 10-15 percent discount to the current market price.

"This might have an impact on off-plan demand as investors might start to look for instant returns at more reasonably priced and ready units that were previously beyond their reach."

She added that deferment would also broadly apply to off-plan properties bought over the past three years, which had extended payment plans and where instalments were linked to project progress.

"Payment plans are generally linked to construction milestones, more than time-based instalments. However, developers typically have a one-year leeway from the completion date stated on sales and purchase agreements to deliver units. Developers will be impacted if handovers extend beyond this point."

She also pointed out that recently awarded and signed projects are being re-examined and re-priced with contractors expected to revise pricing downwards. This implies that prolonged negotiations will likely cause further delays in launching and completing projects, she said.

"Despite the threat of COVID-19, it is estimated that as of April 2020, 67 percent of UAE's residential project construction was progressing according to schedule. However, the remaining 33 percent are under-construction projects facing delays and temporary suspensions due to the pandemic."

She pointed out that developers continue to push ahead with ongoing projects, especially those that are well along the construction cycle. "Dubai has a total of 98 residential projects scheduled for handover by October 2021. Abu Dhabi has a total of 23 residential projects scheduled for handover by October 2021. We keep a close watch on materialisation rates, which have averaged 40-50 percent over the past few years."

Outlook stable

Damac's McLoughlin said although there has been a short-term softening of Dubai's real estate market due to market conditions and a supply-demand imbalance, the medium and the long-term outlook remain stable.

"The decline in prices has created a buyer's market and investors, both institutional and individual, are making the most of the price corrections. The upcoming Expo 2020 now scheduled for October 2021 and strategic government reforms should have a positive impact on investors' confidence, generating further traction in the market."

He added that besides prudent government initiatives, the real estate developers should also be more pragmatic when it comes to launching new projects and help create a healthy balance between supply and demand.

"In 2019, we selectively launched only one new project in softer market conditions and focused on selling completed and near completion inventory. This is aligned with the government's strategy to create a healthy balance between supply and demand in the market," he said.

(Reporting by Hina Navin; Editing by Anoop Menon)

(anoop.menon@refinitiv.com)

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