Dubai developers take cautious approach to unit launches

Developers in Dubai have launched 9,034 units, both apartments, villas and townhouses, year to date in 2018, according to data released by GCP-Reidin. This compares to a total of 46,893 units launched across the whole of 2017.

The decline in the number of launches is a result of the demand and supply imbalance caused by excessive construction activity in recent years, resulting in oversupply.

“In turn, property take-up rates have fallen, leading to a decline in sales prices, translating into lower potential profit margins for developers. As a consequence, some developers are delaying coming to the market,” explains Ivana Gazivoda Vucinic, head of consulting and valuations and advisory operations at Chestertons Mena.

After last year’s frenzy, developers seem to have maxed out on post-handover incentives. Therefore, demand has been sluggish in the off-plan space, with some re-allocation towards the ready market.

“The current and anticipated oversupply situation has resulted in developers taking a cautious approach in regard to project launches. Global, regional and local economic headwinds have weakened the spending power and therefore demand from resident and overseas investors and end-users.

“The rise in construction costs has also squeezed margins for many smaller third party developers who struggle to compete with the big master developers. Until the economy recovers and market sentiment improves, we believe many will adopt a wait-and-see approach,” observes Jenny Weidling, manager – research and advisory, Asteco Property Management.

Meanwhile, developers handed over 27,968 homes in Dubai last year against analyst estimates of 31,000 units – this translates to a completion rate of 90 per cent (according to GCP-Reidin data). This trumps previous years, say in 2016 when only 15,914 units were delivered and 2015 when only 12,366 homes were handed over. This represents completion rates of 61 per cent and 49 per cent, respectively.

Dubai has traditionally seen a lag between actual supply and anticipated supply. Delays are caused by a variety of factors but generally are a result of intentional phasing considerations and unplanned construction delays/financial issues.

“Delays can be caused by many factors, including issues directly arising from the construction process, site or planning restrictions. On the other hand, financial obstacles can also be a major factor impacting the timeframe of project delivery,” says Dima Isshak, senior consultant – strategic advisory, CBRE in a publication by khaleejtimes.