Real estate investors in Dubai are opting to create land stories as opposed to wait on a return to financially rewarding sales revenues in a market no longer dominated speculators.
This significant market change was highlighted at Cityscape Global today by Firas Al Msaddi, Chief Executive Officer of fäm Properties, one of Dubai's biggest real estate brokerages.
" In between 2010-2013 in prime Dubai areas, trading plots was one of one of the most financially rewarding property investments," said Al Msaddi. "But in the last 3 years, story prices got to maximum level, killing chances to deal commercial in the short and average term.
" As re-sale transactions went down considerably, a growing number of story owners have taken the choice to establish their land, several motivated by the deal of completed facilities in prime areas of such as Downtown, Business Bay and Dubai Marina."
Figures from the Dubai Statistics Center reveal a significant increase in the variety of new multi-storey structure allows released over the last 3 years - 1,368 compared to just 674 between 2010-13 - and fäm Properties anticipates a boom in demand for its land growth advisory services to continue.
" Story owners opting to establish a project on their land are discovering that several financial institutions have a good hunger to finance construction, supplied the plot is completely paid up and there are healthy and balanced financials," he said
" They have to keep in mind that earnings margin is low should they to inject complete equity and sell when prepared. Yet there is a decent ROI (return on investment) and IRR (internal price of return) to be generated if they intend their bank financing and off-plan sales well."
Added Al Msaddi: "Those with holding power for two years however no advancement expertise could seek a joint venture with a reputable developer or look for an advancement management company with a tried and tested document in A to Z land advisory."
At the top of the boom in land trading before 2014, prime locations such as Downtown, Business Bay and Dubai Marina were one of the most financially rewarding. Al Msaddi states G +18++ plots introduced by Dubai Properties in Midtown during 2010-11 for AED195 each sq feet reached AED240 per sq ft on GFA (gross floor location). The very same stories additionally brought AED350-400 each sq feet in the secondary market.
" But few investors were buying stories to establish, and temporary rate increase for plots drew in many aiming to re-sell for a suitable revenue margin," he said.
Al Msaddi says the change of investment strategy by story proprietors shows a wider change away from speculation in Dubai realty. Data from the Dubai Land Department reveals off-plan home sales raised in recent years, amounting to those of prepared home purchases for the very first 2Q of this year.
" While first launch phase sales by speculators have actually dropped, there has been a substantial boost in pre-handover sales within six to nine months of conclusion when purchasers are medium to long-term financiers or finish individuals," said Al Msaddi. "It's no more a market controlled by speculators planning to purchase and turn properties for quick profits.”
The background for this change was that in between 2012 and late 2014 launch phase investors had the ability to purchase off-plan and cost a profit within 12 months.
" Yet from early 2015 developers began introducing new stages and sub-projects in existing growths, providing the same rates with extra appealing layaway plan," clarified Msaddi. "This implied that financiers who had acquired the old stock with the initial, less attractive, layaway plan, discovered it harder to sell at a revenue in the short-term.
" As short-term shrank, capitalists moved their method to tool and long-term. So expanding numbers of today's off-plan buyers are end customers, or investors planning to lease their devices once the project prepares, or wait for the right time to sell.”