Real estate project launches show signs of slowing down
Complex Made Simple

Real estate project launches show signs of slowing down

Real estate project launches show signs of slowing down

New Dubai property launches are few and far between these days. The new escrow account law which controls development funds during the construction process, spiralling construction costs and tougher lending conditions for project finance, have all contributed to the slowdown. Yet demand remains strong and off-plan selling has shifted to the Northern Emirates.

    Indeed, Dubai's decision last summer to put the breaks on developers through the imposition of an escrow account system – as typically required by law in many global real estate markets – has been a boon for developers in Ras Al Khaimah, Umm Al Quwain and Ajman.

    Some developers have chosen to launch their next off-plan properties in these Northern Emirates on the back of their successful (i.e. sold-out) projects in Dubai. However, anybody deciding to invest in these markets should be aware that they do not benefit from the protection of the Dubai escrow account law and that developers have unrestricted access to their funds during the construction process.

    It is also undoubtedly true that spiralling construction material prices are dissuading developers from starting more projects in Dubai. The cost of steel rebar, for example, which is a crucial material for any reinforced concrete building, is up by no less than 30 per cent in the past two months.

    Business plans


    Dubai developers all have to make their business plans work by balancing the cost of construction against the selling price. And with building material prices at these levels the selling prices may be insufficient to justify construction.

    At the same time, project finance has become more expensive and harder to raise courtesy of the global credit crunch and almost every local developer will be looking to gear their project to achieve a higher rate-of-return on equity employed; if finance costs more then the viability of a proposed project may shift significantly.

    That is not to say that new projects have stopped entirely. This week saw the launch of the Isla Moda from Dubai Infinity Holdings, a fashion themed development of 400 villas on an island that is part of The World. But Dubai real estate is now more focused on smaller, niche projects. Villas from Mazaya in Dubailand is another example.

    Consolidation


    It also has to be said that Dubai now has so many real estate projects in-progress that perhaps there has to come a time when enough is enough, and developers just have to get on with building out their existing portfolio of developments.

    Certainly off-plan buyers who have waited patiently during longer and longer delays – ameliorated only by the knowledge that prices have been rising strongly in the meantime – can not be expected to wait forever.

    At the highest levels the word is that 'delivering the product' is the mantra for 2008 and so new launches will go on hold. On the other hand, the good news is that demand for Dubai property remains robust and that the capacity to absorb new projects is confounding the sceptics, so far.

    See also:
    Dubai regulator warns buyers about rogue developers
    Buyers want more in Gulf property boom
    Special Report: 'Buying property in the UAE
    Author
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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