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Concerns about excess home supply in Dubai is misplaced

Concerns about excess home supply in Dubai is misplaced

 
Actual deliveries are falling well short of the 25,000-30,000 units to make a difference
Dubai
Concerned about an oversupply of new homes in Dubai? And what it might do to property prices and rents? You have no reason to be, says Rizwan Sajan, Chairman of Danube Group.

“New home deliveries haven’t touched anywhere near 25,000-30,0000 units in the last five years,” said Sajan, who has a development portfolio of Dh3 billion plus. “This year we are probably looking at about 15,000 completed homes in Dubai. Those numbers are far from likely to cause excess supply and impact on prices.”
 
But there are other factors that might give developers some pause on their new projects, VAT for instance. While a 5 per cent charge will not apply on residential purchases, developers might need to give some time for residents to adjust to a VAT reality.
This is why Danube has not rushed out with its next launch, a “affordable luxury” project in Arjan and which it had earlier planned to launch this month. Now, the plan is for a launch towards the latter part of the first quarter of 2018. And for this one, the developer is guaranteeing a 15 per cent return for buyers.
 
“Whatever be the sentiments, I can’t see property prices in Dubai going up in 2018,” said Sajan. “Even if rents do come down by 3-5 per cent, property investors can still make their 8 per cent and plus returns.
“As for developers, a big plus for us is the dip in land prices — I think they have now come down by 15 per cent from their peaks.”
In 2017, Danube had released Dh750 million worth of residential inventory into the market, of which, Sajan says, Dh100 million remains to be sold. The Danube chairman is not overly perturbed by this.
 
“Demand is still very much there, in some form or the other, for properties in the Dh1.2 million to Dh1.5 million space,” Sajan added. “We will get back into having a new launch every three or four months as soon as the market adjusts to VAT.”
The Group as such saw growth slip below double-digits for its core business of building materials.
 
But its interiors and home accessories division recorded a 30 per cent growth, while the property development arm turned in growth slightly lower than in 2016. The overall Group numbers could have been better if collections from Saudi Arabia had not been affected.
As for pricing trends in the UAE, “With VAT, building costs will go up … but I don’t think market sentiments will allow this to be reflected in the final property sales price,” said Sajan. “Thankfully, a lot of our existing projects are well advanced on the construction side.”
It will be interesting to see when developers in Dubai reopen the off-plan tap in 2018. If they remain cautious and stay away during Q1-18, it would mean two consecutive quarters of weak off-plan activity. The numbers have already shown quite a dip in November and December.
Outside of residential, a possible move into serviced hotel apartments beckons. The company has been giving this serious thought, reckoning that the same mid-market approach will win it favours from investors. Other developers have already gone through the same route, but primarily in the high-end space. But there are locations opening up in the city where more affordable projects with a hotel element can be built.
 
“If that happens, we will manage those properties through an in-house division rather than third-parties,” said Sajan. “But our primary buyer base remains those who are currently renting and now want to make the switch to owning. I would say at least 80 per cent of our user base represent such buyers.”
 
By Manoj Nair, Associate Editor
Gulf News