Moving forward with caution
There's no denying the growth spurt that Dubai is caught in.
New real estate projects are coming up, whether prices weaken through a market correction or not. Developer margins are high, over 50% and project pre-sales - 30-50% - is enough to fund the completion of an entire development, says Standard & Poor's (S&P).
However, property companies are taking a more conservative approach this time around. "They are typically launching new developments on a pre-sold basis so they would only launch once they have sold enough to fund the construction work and that is not difficult when you have margins of 50% plus," says Tommy Trask, director, Corporate Ratings, S&P.
Developers are also making sure that a buyer is committed to an at least 30% payment before he can think of selling. "We have provisions in the SPA that restrict sales until two installments are paid," says Rahail Aslam, CEO of Select Group. "In addition, there are Oquood registration fees of 4% - this is another safeguard for developers to ensure they are principally dealing with end-users and long-term investors." Earlier this week, Damac Chairman Hussain Sajwani also voiced the strong opinion that developers are doing their part in cooling growth down to more manageable levels.
In order to meet the vast demand, competition among UAE banks is heating up, resulting in lower interest rates, discounts and special offers. Despite the lowering mortgage rates, most transactions seem to be carried out in cash as the Central Bank data shows that the country's mortgage sector has remained stagnant over 18 months.
"We foresee an acceleration of real estate lending as developers launch new projects and more local and expat customers seek to enter the mortgage market," S&P analysts wrote in a recent report.
Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. While there definitely seems to be an uptake in development and investment, there also seems to be an air of caution from the part of all parties involved. Developers have learnt to shy away from investors looking to flip property to make quick money while mortgage restrictions ensure that buyers have the funds needed to make an investment. Trump was also seen remarking that while he may not have thought the same a few years ago, he now believes in the city's upside potential. "The numbers have a long way to go before they catch the number of years ago...today they have tremendous control, checks and balances and people doing them are putting in their own checks and balances. I think Dubai has tremendous upside."