The forecast rang true with hallways quieter in comparison to healthier economic times, although some developers did claim that they recorded billions of dirhams worth of sales during the three-day event, which allowed onsite sales for the first time since the global financial crisis.
Core Savills said in its Q3 2017 Dubai Residential Market report on Wednesday that research it had compiled alongside real estate information company REIDIN, the number of off-plan sales doubled in September 2017, in comparison to the number of transactions recorded in 2016.
Core Savills attributed this surge to the reintroduction of onsite sales after a 10-year absence at Cityscape Global, but warned that more transactions did not equate to more investment.
“I think if you compare Cityscape this year with Cityscape the other years, there’s an impression of things being relatively more active than in the past, [but] I think this is a wrong impression,” David Godchaux, CEO of Dubai-based property consultancy Core Savills, told Thomson Reuters Projects in an interview last month.
“I think it’s a biased impression, because as we know Cityscape has allowed sales to happen here, so obviously we say more sales [are] happening outside... but the reason why I’m saying this is that a lot of the products that have been acquired are in the very bottom of the segment, with very aggressive marketing strategies, with a lot of money spent on marketing.”
Core Savills said in the Q3 report that a high number of accommodating payment plans on offer for off-plan units may have encouraged the rise in transactions, particularly among investors. “However, such plans most likely do not offer significantly increased investment values and may even mislead the market by generating a false sense of recovery,” the report said.A dangerous trend
Godchaux said during last month’s interview that he believes some developers are now competing by luring buyers with gimmicks, rather than value-addition.
“So we’ve moved from an event that used to be, in my opinion, more of a balanced event between B2B and B2C - with more advisory, more professional services, more announcements of big projects and master plans that were very interesting - to something much, much, more consumer-driven and in my opinion there is a danger in that,” he said.
“This danger is to see some developers competing not on adding value and coming up with more innovative products or investing more money in research and development or in a better product, but rather competing on marketing spend and competing on cheaper product. And this is not the trend I like.”
Godchaux added that the exhibition this year had become a representation of “less efficiency” and “more hard sales”, which ultimately works against buyers.
“When a developer spends 20 percent to 50 percent of their budget in marketing, that’s 20 to 50 percent of the price point that they could potentially reduce further,” he explained.
“And that’s sad because the end user ends up paying for this very expensive marketing they do at Cityscape. I think some of the budget could have been better used in maybe making the product a little bit better.”
Godchaux said that the danger of a “price war” could potentially reduce developers’ margins, making them a little less cash-rich because of the impact that funding long payment plans has on cashflow.
The Core Savills report said sales transactions for off-plan units have increased by 62 percent when comparing year-to-date 2017 figures to the same period last year. However, even with this spike in off-plan transactions, the average unit value is 11 percent lower, highlighting that developers are resorting to bringing lower entry price products to the market. Maturing market, but over-reaction to ‘affordable’ segment
Meanwhile, Godchaux said there were “absolutely” fewer launches at the 2017 edition of Cityscape when compared to last year.
But a smaller number of new projects does not necessarily signal a negative trend, he said.
“I actually think less big announcements shows the market has matured and is still maturing, so developers are more realistic about what they will achieve, and it’s working in favour of their credibility,” he explained.
“So they announce something, they are more likely to deliver it, than five, six or seven years ago with so many pre-crisis projects some of which were never delivered.”
The backlog of work in the UAE shrunk by around $17 billion in 2016, according to Faithful+Gould’s Construction Intelligence report
, published in July. Faithful+Gould forecast in its August report that it expected a full year of $45 billion in awards, up slightly from 2016, which yielded a full year of $43 billion and was the most difficult year since 2012.
“We still have new stuff (projects), but this new stuff is primarily in the lower bracket of the market, which in my opinion is an over-reaction to the lack of affordable we’ve seen in the past,” Godchaux said, adding that the affordable stock available is still not the right fit for end-user demand.
“The problem is that this affordable, in my opinion, is not really affordable,” he said.
“To be affordable, you need the right product for the right people. A lot of families wish they could buy a two or three bedroom [home] below the one million UAE dirham price point. But below that price point [what’s available] is a studio or a one bedroom, which is attracting investors but not necessarily the people who would need it.”
The Savills report said investors account for most off-plan sales, particularly below the 1 million UAE dirham price point.
Mahmoud Hesham El Burai, CEO of Dubai Real Estate Institute Development, which is part of the Dubai Land Department, told Thomson Reuters Projects in an interview earlier this month that property developers in Dubai will get incentives to include ‘affordable’ homes in their product mix in central areas
as part of a new government policy on affordable housing to be implemented next year.
The official also defined what the Land Department considers ‘affordable’, which is that people should not pay more than 30 percent of their income for housing. In Dubai, people currently spend 41 percent of their income on accommodation.
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