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Developers fast completing residential projects ahead of Expo 2020 Dubai

Residents will be able to buy or rent properties on more flexible terms and conditions as record 41,000 residential units are expected to come online this year due to higher materialisation rate of projects ahead of Expo 2020.

The latest data issued by Property Finder Group indicates that the up-and-coming communities in Dubai are likely to see more homes completed this year while the established neighbourhoods will see only a few additions to their inventory.

The real estate portal said 30 per cent of the 41,000 residential units under construction in Dubai this year are 96 per cent to 99 per cent complete with Jumeirah Village Circle is expected to deliver 3,400 homes, the highest in Dubai.

Lynnette Abad, director of Research and Data at Property Finder, said this is an excellent time for those who are looking to purchase property.

“Considering more than 70 per cent of expats rent, this new supply is very much welcomed as residents are benefiting by upgrading the community in which they reside. As the Dubai property market matures, residents are finally seeing rents reduced to a level that is considered affordable and, in turn, their cost of living is going down,” she added.

Shaher Mousli, chairman and CEO of Arthur Mackenzy Properties Group, said 2018 was a slow year in comparison to 2017 and 2016, which caused some projects to slow down. However, last year, there was an influx of investors who came in and pumped money into these projects that were offered to them at good price points by owners and landlords.

“Usually, opportunities arise for investors when there is a slowdown in the market. During a crunch time Dubai has always presented lucrative opportunities to external investors which enables project completion,” he said.

“I believe that a main reason for many projects heading towards completion now is to meet the expected demand during Expo 2020,” Mousl told Khaleej Times.

Over 28,000 homes were handed over in Dubai in 2018, which has been more than the number of units handed over in the past few years, according to Property Finder report.

“I believe Dubai’s real estate market has been extremely resilient in a cloudy weather and continues to remain one of the highest yielding internationally. There are several projects anticipated to complete this year, which in turn will offer the consumer a wider choice in location, price and quality,” said Atif Rahman, director and partner of Danube Properties.

Due to the delivery of these projects, he said a bit of pressure will be felt, but should not be considered a sign for worry. Like it has happened historically in every global market, it will even out over a period of time with the increase in demand through growth in population, he said.

“I expect the demand to catch up from Q3, which shall create the upward momentum for sale price and rentals. It’s a great time for end users and investors to take advantage and be ready to reap the results,” he said.

Higher materialisation rate

Although, over 41,000 homes are scheduled to be completed in Dubai in 2019, there is usually a considerable gap in what is announced and what enters the market. Actual deliveries have been 30 per cent to 50 per cent lower than developer projections. This is because developers usually adjust supply to match actual demand, the report said.

Referring to JLL report, Abad said traditionally materialisation rate has been 40 per cent to 50 per cent. “Supply hit a peak in 2018, however that doesn’t mean the materialisation rate changed due to the number of projects under construction and new project launches,” Abad said.

As of February 2019, the 41,000 units slated for completion in Dubai, 30 per cent are 96 per cent to 99 per cent ready, according to Property Finder. Moreover, 32 per cent of under-construction projects are 91 per cent to 95 per cent complete while 29 per cent of projects being built are 85 per cent to 90 per cent complete. This may result in a higher materialisation rate of projects this year, the report said.

“One of the key reasons behind higher materialisation rate of projects is partly due to the Expo 2020 factor, as most of the projects were planned to support the growth, which is expected from the Expo,” Rahman of Danube Properties said.

He attributed the credit to strong regulatory environment that ensures healthy project delivery and high investor confidence. “The support and control from the regulators has made every Property developers more responsible towards their obligations to complete projects on time.”

Referring to Core latest report on Dubai property market, its head of Research and Advisory Prathyusha Gurrapu said majority of the deliveries are in the affordable to mid-market segment, with Dubailand and Jumeirah Village Circle and Triangle accounting for one-third of all handovers.

“Although the pace of price softening has relatively slowed, we expect a lag in sales and rental price recovery as existing vacant stock and future supply over the next couple of years is expected to outpace steady demand,” he said.

He said many of these developments were planned during the 2014-15 peak.

“We also foresee developers aligning deliveries in the run up to Expo 2020. We have seen handovers increase over the last year, with over 21,700 units delivered in 2018 and expect a higher number of deliveries over 2019 and 2020, despite taking into account conservative realisation rates,” he said.

A good start

A total of 4,441 residential units have been completed in Dubai in the first two months of 2019, of which 4,184 were apartments and 257 were villas and townhouses, according to Property Finder research.

Jumeirah Village Circle will see the highest number of homes completed this year (3,408) and accounts for 8.19 per cent of the upcoming supply in 2019. Business Bay is next up, with 3,152 homes slated for completion in 2019 and accounting for 7.57 per cent of the supply. Third is Dubai Sports City with 3,098 homes to be ready in 2019 and contributing to 7.44 per cent of total supply.

In the areas where new supply will be released, sales and rental prices will continue to adjust based on market demand,” Abad said.

“Over the last year, this has given opportunity to a new market trend where we have seen a significant amount of renters converting into home owners and we believe 2019 will be the year for end-users,” she said.

“For those continuing to rent, we will continue to see the trend where many will upgrade to bigger units or move to more desirable areas with sought after amenities in addition to retaining negotiating power. Both of these trends have increased the amount of disposable income which contributes to the overall economy,” she explained.

New developments such as Mohammed Bin Rashid City, Al Furjan and Town Square will each add over 2,000 homes to Dubai’s residential market this year. Other new projects like Akoya Oxygen, Mirdif Hills, Dubai South and Damac Hills will each add over 1,000 units to Dubai’s residential market across 2019.

Established communities such as International City (512), the Palm Jumeirah (289), Dubai Motor City (276), Dubailand (188) and Jumeirah Golf Estates (95) will only contribute a small portion of the supply pie in 2019.

Bucking this trend are communities such as Downtown Dubai (1,772) and Dubai Marina (944), where considerable construction activity is still on and therefore will see more home completions.

To a question about affordable share in estimated 41,000 units to be completed this year, she said: “If we look at the areas where majority of the supply will be completed, we can expect to see affordable stock in quite a few areas including JVC, Sports City, DSO, Dubailand, Arjan and Dubai South which account for about 33 per cnet of the 41,000 to be completed.”

A construction site in Abu Dhabi. The new regulation enables the Central Bank to allow more property financing as needed. Analysts say this is crucial for the completion of projects that had been hounded by funding challenges.

When the UAE Central Bank removed a key hurdle that had long limited the ability of banks to fund real estate projects, it also made sure to remain flexible to counter risks of an overheating market. Announced in November, the regulation abolished a ceiling on banks’ exposure to real estate loans, which had been previously set at 20 percent of the total deposits of banks. A new limit has not been announced, but the matter is under discussion with the UAE Banks Federation.

This effectively means that the Central Bank can adjust the ceiling higher or lower based on the performance of the market.

“The cap amendment would act as a ventilator to the current real estate sector wherein we were witnessing cash flow constraint in the market,” says Dhiren Gupta, managing director of 4C Mortgage Consultancy. “The banks could now allocate larger reserves to finance real estate development for both at retail and corporate lending.”

Enhanced liquidity

As more cash pours into the market, Gupta believes the move will ease the stress in the property sector. “It’s been predicted that the loans will grow up to 5 percent in 2019, but it is judgmentally important to maintain current loans to value levels for mortgages,” he adds.

The lifting of the limit also acts as a catalyst to support infrastructural development in the UAE. “Under this new regulation, project finance could see as a major beneficiary, as earlier banks would restrict their lending appetite to finance such development,” says Gupta. “Also, the banks would be flexible in keeping the funding restriction set by the Central Bank. However, so far, it is not sure which loans will fall under the real estate finance.”

The regulation is also expected to uplift the confidence of real estate investors and end users in the UAE market. “The amendment indicates that the UAE Government is striving to maintain strong economic growth for the people of this country,” adds Gupta. “With this new regulation bank appetite to finance real estate development would growth, hence, the market could witness added mortgage transactions in the coming months.”

More aggressive participation

Amer Khan, head of retail products and segments at Standard Chartered UAE, says the amendment will help banks participate more aggressively in the real estate sector, particularly in key growth markets such as Dubai and Abu Dhabi. “It allows banks to prioritise the use of its deposits to fund real estate loans both to the property developers and customer mortgages,” says Khan. “Increased access to bank funding will ensure property developers can complete existing projects and fund new projects as well. This will give ample options for homebuyers and investors. Also, like property developers, individual homebuyers and investors would have access to more funds, which would also encourage them to purchase the property.”

With the 20 percent cap, if a bank’s total deposit is Dh100 billion, the amount the bank is allowed to lend as real estate loans should not exceed Dh20 billion. “If banks already reach this limit, any loan request coming from property developers or mortgage will not be granted,” explains Khan. “If there will be no cap, then the bank may opt to lend more than Dh20 billion to fund real estate loans. This means the real estate sector will have wider access to funds. We can expect completion of projects faster or continuation of projects that were halted due to lack of funds. Also, we can expect more new projects due to access to more funds.”

Sunil Gomes, CEO of Gemini Property Developers, believes the removal of the cap will also give a push to the affordable market segment. “It will stimulate investors, especially the middle-income investors to buy property as the confidence increases due to this new regulation,” says Gomes.

Atif Rahman, director and partner of Danube Properties, says the Central Bank’s move is well timed for the property market. “That will help the banks to support the property and construction sectors, which will now have access to greater liquidity. It is a very timely and significant decision that will help stimulate the real estate market in the UAE.”

It is one thing to somehow manage to meet the basic requirements and an entirely different thing to deliver what is actually promised. The difference is the fulfilment of your customers’ aspirations, and hence, your own. Buildings aren’t just buildings, they are a lot more than that. Those in the industry who understand this are able to make good on their promises while the others fall behind. The smallest things add up to make the most significant impact when it comes to constructing buildings. Modern, ergonomic designs need to look at factoring in everything.

On the one hand, low floor area ratios, plot coverage and setback limits need to be focused on. On the other hand, reduced end-user costs, higher convenience, practicality, energy efficiency and added values need to be incorporated as well. All these things come together to catalyse excellent economies of scale and end-user satisfaction alike. To achieve both these primary objectives simultaneously is what enables entities to not just deliver on their promises, but even surpass them often at times.

Efficiency is key

It majorly comes down to efficiency, be it the efficiency of the utilisation of space, or the efficiency of building materials used. It is imperative to understand here that cost efficiency and cost reduction are not the same things. Those focusing on cost reductions often end up falling short on the expectations they set. However, those wasting precious resources on unplanned executions that they think might work out end up in the same boat as well.

Efficiency refers to quality design, low maintenance costs, maximum utilisation of building materials and minimum wastage in any shape way or form, from the construction stage to the point of resale even, when the property has been inhabited for a few years already.

Efficiency lies in the smallest of things, that are most likely to be neglected. When a building is being built, and houses are being designed, for example, there are a lot of things that can be done during the design stage itself that can contribute to reducing maintenance costs and enhancing the quality of housing. The construction of naturally lit corridors and the use of sensor-controlled lighting in common areas, for example, will continue to save costs and energy throughout the life of the building, while making for a beautiful and modern place for customers to want to have a house in. The use of epoxy paint in stairwells in another small way of reducing the overall maintenance cost to customers as the time needed between re-paintings will increase with reduced damage.

Similarly, a number of substantial things can be done inside the house as well. The use of granite flooring and quartz kitchen platforms, for example, goes a long way in contributing to the convenience of the inhabitants because they’re easy to maintain as these surfaces stain less and this also reduces the cleaning cost.

Moreover, their water absorption is minimal and their nature more durable. There are many such areas where attention to detail in terms of quality and costing can really do wonders for the whole architecture itself.

Apt pricing is crucial

Creating an exceptional product or service is essential for it to succeed, but that can only happen if it is priced aptly. Appropriate pricing is the key to driving profitability because your prices are not supposed to make your offering appear unaffordable to your buyers. It should be able to empower your customers to make a positive purchase decision.

For you to add value to your offering, it is not necessary for you to incur towering expenses and pass them on to your customers. A smart strategy and attention to detail can actually enhance the quality of your offering manifold without increasing its price because affordable housing doesn’t have to lack imagination, and quality inputs don’t always cost a bomb.

It is crucial to understand that delivering what you promise is not just about meeting the customers’ needs; it is also about fulfilling their dreams. An offering that delivers on its promises is an offering that creates its own market.

The writer is director and partner of Danube Properties. Views expressed are his own and do not reflect the newspaper’s policy.