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Delays keep property oversupply at bay in Dubai

Dubai’s off-plan market is treading a delicate line between the risk of having too many properties and the threat of project delays, industry insiders have said.

“There’s plenty of supply coming in,” Haider Tuaima, director of real estate research at consultancy Valustrat, told AGBI.

“If everything is handed over on time, then we will have a severe oversupply problem in the next few years.”

Tatjana Lescova, associate director at S&P Global Ratings, also raised alarms about oversupply last year, pointing to around 40,000 expected new units for 2024, which might surpass market demand unless offset by population growth.

Yet, with a historical completion rate of only 45 to 55 percent, Tuaima predicts significant delays for half of the ongoing developments, stretching from six to 18 months.

Data from Valustrat reveals that more than 26,700 apartments and almost 4,000 villas were completed in 2023, meeting 55 percent of initial estimates.

“We are very much seeing delays in handovers, and that’s why the market continues to be strong,” Tuaima said.

“There is population growth. There is high demand. It’s just a question of do we have too much supply coming in one go? That would be the risk.”

With nearly 51,000 new homes anticipated in 2024 based on developer schedules, Tuaima expects “significant downward adjustment due to unforeseen project delays”. 

CBRE figures reveal that out of the 71,000 units slated for 2023, only 39,000 were delivered.

Sidharth Kumar, a sales manager at Forest Hills Real Estate, said he is seeing distressed deals – when owners are forced to sell because of financial difficulties – for some projects that are already a year behind schedule.

“I have clients attempting to offload their delayed units at the original purchase price,” he said.

“Yet, developers with delayed projects are still launching and selling new projects.”

Kumar pointed out that such delays disrupt payment plans, which significantly affects investors relying on rental income to cover their monthly payments. 

End users are doubly affected, as they continue to pay rent on their current properties while also meeting payment obligations for properties still not delivered.

One analyst, who declined to be named, has said that developers are “getting anxious” over increased competition and the glut of new projects.

Some have started offering 1 percent payment plans to maintain interest in an increasingly crowded off-plan market and to delay an anticipated slowdown after years of record growth.

Ziad Hinnawi, sales director at RAK Properties, described the decision as a strategic effort to “widen the investment pool” and “spotlight developments with early potential or with stagnating interest.”

However, experts warn that this tactic carries significant risks if projects do not deliver on time, drawing parallels to the precedents set before the 2008 housing crash.

Dubai’s real estate market – an important driver of the emirate’s economy – was predicted to experience a price drop of 5 to 10 percent over the next 12 to 18 months.

But in January the UAE removed the AED1 million ($272,000) minimum down payment requirement to qualify for a golden visa through real estate investment, which is anticipated to stimulate the property market.

Dubai is also exploring enhancements to its long-term business licensing scheme, offering “golden” licences to entice more investors and business owners to set up in the emirate.

For a detailed perspective on the property market, visit: Dubai - VPI Residential Capital Values - March 2024