Declines are starker at the luxury end of the market (Burj Khalifa prices dropped 11.1 percent over the past 12 months and are 72.3 percent lower than their 2008 peak), while prices of homes in affordable communities are holding up, the firm argued.
In an interview with Zawya on Thursday, the head of the company's Dubai office, Murray Strang, said: "The constant, continual supply of off-plan just keeps happening and it's hard to understand how developers are seeing the demand holding up for a lot of the new stock that's being launched now."
The report said that 51,000 new units are expected to be delivered this year, followed by 53,000 next year and 29,400 in 2020. Even before any additional launches, that means 134,000 new homes are scheduled to complete by the end of 2020, while over the same period population growth should lead to the creation of 77,500 new homes, Cluttons said, although it acknowledged there is likely to be "slippage" in deliveries.
"For a market that's been struggling with price contractions and rent contractions for three to four years, the number of units to come on over the next three to four years is still considerable," Strang said. "It's hard, on the face of it, to predict with any accuracy suddenly where you would hit that clichéd bottom of the market.”
He added that although there was still demand from investors who are being incentivised by "increasingly competitive" offers, such as generous off-plan payment terms, guaranteed rental income and discounts on fees, the challenge faced by developers is the sheer weight of competing stock on the marketplace.
Strang said that while developers with a strong track record for delivery and quality are still likely to be able to find buyers, “how that filters down to secondary locations, lesser-known brands, unproven developers is probably the more concerning thing”.
“And at the end of the day, that competitiveness for pricing covers right across the market,” he continued.
In February, Gulf News reported that rules were being drawn up that would restrict off-plan sales until 50 percent of a project is complete (the current level is 20 percent).
The Cluttons report stated that if such a law were enacted it would curtail off-plan sales activity. However, it warned that this could have knock-on effects such as some firms cutting corners on construction in order to reach the 50 percent level with the minimum outlay, and that it would likely suppress land values. Strang said that given current development models, such a law would be "extremely difficult" for developers.
"The capital to pay contractors and to carry out all of the works to get to 50 percent has to come from somewhere, and as far as I'm aware there's not a huge amount of active developers out there that have 50 percent project cash flow sitting waiting to be implemented without any input from end buyers," he said.
On Wednesday, property consultancy ValuStrat said in its first quarter report that off-plan demand is taking its toll on prices in the secondary market. It said 60 percent of sales in the first quarter was for off-plan units, leading to steep quarterly falls in communities such as International City (6 percent), Arabian Ranches (4.1 percent) and The Meadows (3.6 percent).
In a press release announcing the report's results, ValuStrat's managing director Declan King said: "Whilst the opening of 2018 saw reduced off-plan launches and sales activity as compared to the year before, the prominence of new-build supply in the wider Dubai real estate market continues to be a notable theme and a contributing factor to broader price declines."
(Reporting by Michael Fahy; Editing by Shane McGinley)
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