Off-plan sales set to drive future of Emirates property market

Aldar

• Homes for Sustainable City – Yas Island snapped up in 24 hours
• Nakheel has bought Dubai waterfront on which to develop real estate
• Prices are predicted to increase by 13.5% in the next 12 months

Off-plan real estate sales are expected to increasingly satisfy demand from investors in the UAE in the future as developers sell out of inventory.

Construction efforts are likely to centre on completing existing projects and masterplans for the next two to three years, while major new launches are set to decrease until the middle of the decade, said Cyril Lincoln, executive vice president and global head of real estate finance and advisory at Mashreq.  

Lincoln said the UAE’s real estate sector will continue to perform strongly after going through a “dramatic transformation” over the past three years. 

The sector initially benefitted from the government’s effective management of the coronavirus pandemic, and has since seen strong demand with prices continuing to increase.

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“What we are now also seeing is inventories being sold out, and that is probably the story of the day at the moment as it means future demand is now being met by off-plan sales,” said Lincoln.

Off-plan sales saw phenomenal growth last year, accounting for nearly 55 percent of overall sales volume, up from 44 percent in the previous year and 56 percent of total sales value, an increase of 15 percent on 2021.

Earlier this month, off-plan homes offered at the Sustainable City – Yas Island, launched by Aldar Properties in partnership with Diamond Developers, were snapped up within 24 hours, generating $272 million in sales. Nearly a quarter were bought by overseas investors.

In November, off-plan residential real estate sales reached a value of $3.7 billion, which was a two-year high.  

The reinvigorated real estate market means legacy projects are now being completed more quickly. 

“We don’t see a lot of major new launches, and so far efforts have been focused on completing what is already under development. That may well take two or three more years,” said Lincoln. 

Faisal Durrani, partner and head of Middle East research at property consultancy Knight Frank, told AGBI: “The secondary market is where the bulk of activity continues to be concentrated, with buyers targeting completed homes in established communities.

“But the $10 million+ segment of the market has seen the proportion of off-plan sales climb, reaching 41 percent last year, compared to 28 percent in 2021.

“In general we are yet to see the same scale of new project launches that we have seen in past cycles. Developers have been slow to respond to the depth of demand for homes in the city, particularly at the upper end of the market, where there is no relief in sight from the drought of stand-alone waterfront homes.”

Prathyusha Gurrapu, head of research and advisory at Core, said that while secondary sales saw a 50 percent increase last year compared to 2021, the off-plan market saw a 84 percent rise.

She added that the increase in off-plan sales in the prime residential market were even more impressive at 113 percent in the same period.

Last year Dubai’s annual real estate transactions crossed the AED500 billion milestone for the first time with 122,658 real estate transactions.

The past year also saw the completion of 55 real estate projects worth AED11.9 billion while a total of 350 real estate projects are currently being developed, according to the Dubai Land Department.

Lincoln identified two key areas for future development in Dubai – Dubai South and offshore/waterfront areas.

In Dubai South, following early investments from local investors such as Emaar, the area is now attracting international interest including US firm Discovery Land.

Much of the waterfront real estate that has yet to be fully developed sits with master developer Nakheel which secured $4.6 billion in funding in November that will be used to accelerate the development of its new projects, including Dubai Islands and other large waterfront projects. 

“The transaction showed that Dubai and Nakheel still have the appetite for major new projects, and banks are in a position to support these ambitions,” said Lincoln.

The financing follows the release in August of details of a new masterplan for the reclaimed islands next to the Deira corniche, now known as Dubai Islands. 

“Offshore projects like these are massive undertakings. The last plots on the Palm Jumeirah are now being developed, so that masterplan has been a 20-year project,” said Lincoln.

“The new masterplans Nakheel is working on are even larger, and when completed will also double the size of the Dubai we know today.”

Abderrahmane El Alj, chairman of Chaimaa Holding, whose latest real estate project is Elegance in Jumeirah Village Circle, Dubai, said: “The absence of ultra-prime, waterfront houses is the emirate’s biggest problem.

“Developers are finding it difficult to act quickly enough, yet if we consider the approximately 81,000 units scheduled for completion by the end of 2025, Dubai could seem to have enough supply. 

“But when that number is broken down, we can see that between 2023 and 2025, only eight new villas will be built in Dubai’s most prestigious neighbourhoods. 

According to the 2023 Premium Prediction study from Knight Frank, Dubai’s prime residential prices are expected to experience the fastest growth internationally in 2023. 

Due to the growing interest in the market from high-net-worth people and overseas purchasers, prices are predicted to increase by 13.5 percent in the next 12 months.

A Betterhomes report said last week that rising property rents in prime areas of Dubai are increasingly causing tenants to move to more affordable suburban communities, leading to a growing demand in the mid-market residential segment.

It said average apartment rents increased by 25 percent, townhouses were up by 42 percent and leases on villas soared 61 percent.

With the supply of new homes set to remain constrained, and the influx of new residents expected to continue, the report said rents were likely to continue to grow this year.