What does the sale of 7,000 villas in 24 hours mean?
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What does the sale of 7,000 villas in 24 hours mean?

What does the sale of 7,000 villas in 24 hours mean?

The phenomenal sale of 7,000 villas at the Jumeirah Village project in 24 hours last week has implications for the whole Dubai property market. What does this mean? And is it a good or bad thing for the market?

    To say the Dubai real estate market is hot may be an understatement judging from last week's sale of 7,000 upscale villas on Nakheel's new Jumeirah Village project in the Emirates Hills district. The previous record was 2,000 villas sold in three days on The Palm Jumeirah.

    However, other developers have also sold out projects quickly in recent weeks. Emaar Properties has sold several apartment blocks in The Greens, also in the Emirates Hills, and a release in the Arabian Ranches was snapped up.

    High demand for property is a reflection of confidence in the future of Dubai, and newly launched mega-projects such as the Dubai International Financial Centre and the Burj Dubai. But there are two other lessons that can be drawn.

    First, property is being sold too cheaply. This is the same as a bargain in a local supermarket. Suddenly queues appear from nowhere, and if the sale is announced in advanced some brave souls will spend the whole night waiting for the doors to open.

    In a market economy, cost will rise to match demand. And in the Dubai re-sale market the market is working, raising prices and adjusting to the ebb and flow of the buying public's consumption.

    It is more difficult for developers in a two-year old freehold property market. How do they set the right price to shift the latest inventory without being left with empty houses? This is clearly a matter of trial and error, and recent experience would tend to suggest real estate prices could be moved upwards for the next releases.

    Secondly, the rush to buy reflects the manner of the sales, and in particular the ability to buy on the margin with a 20% deposit while then being able to re-sell a full title. Thus a modest rise in real estate prices offers a big return on the actual capital employed.

    This does not matter as long as prices keep on rising - indeed it promotes and enhances the boom in the real estate sector. The problem comes when the market suffers a setback, and the downward pressure on the market is greatly enhanced as speculators all try to close their positions at the same time.

    Given the sudden rush to buy in Dubai over recent weeks, the developers might judge it prudent to increase the deposit required to buy off-plan. This would instantly reduce the profits that speculators can make on a quick re-sale by tying up more capital, and cut the number of units that they could afford to buy.

    It is a tough call for the developers, but they are mainly Dubai Government controlled and have a longer term view than making a quick profit. They want to see real estate prices rising steadily but not excessively and a constant flow of capital into the sector to provide rental property at affordable levels.

    Indeed, this is a fundamental source of stability in the Dubai property market. But that could just make the market look more of a win-win situation for investors and encourage further speculation.

    So expect to see some changes in the Dubai property market as a result of the phenomenal sales off-plan of the past few weeks.
    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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