Dubai's real estate firms are pinning their hopes on lucrative incentives, attractive long-term repayment plans as well as government initiatives to control over-supply to drive home sales.
Property developers in the emirate are left with no option but to offer a series of attractive schemes to win over buyers confronted with a huge supply of an estimated 50,000 units this year. Home prices have plunged anywhere between 25 per cent and 33 per cent in nominal terms since 2014, Standard & Poor's said in a report, citing property consultancy firm Asteco.
Property developers are going the extra mile to lure potential buyers for their newly launched and ongoing projects by extending post-handover payment plans on off-plan properties to ready homes,
rent-to-own options and by arranging mortgage finance for initial down payment of the property. Rent-to-own scheme allows the tenants to pay in rent each month, towards a home that they will own at the end of the tenure, making it a much more cost-effective option.
Prominent developers in the UAE, including Emaar Properties, are adopting rent-to-own like schemes to open up their customer base to a new market of potential investors.
Falling Home Price
Developers also hope the low valuations in the aftermath of price corrections in the past couple of years could prop up demand.
"Developers are very aware that they need to be creative with new offerings to attract more foreign direct investment and be competitive with other popular investment markets," Lynnette Abad, director of research and data at Property Finder told local media.'
More than 80 per cent of expatriates in the United Arab Emirates (UAE) still live in rented homes and most of them aspire to own their home and attractive repayment plans will surely help them.
"In fact, all industries depend on financial institutions for growth and momentum. But considering the challenges and barriers that most potential homeowners face from the financial institutions in the region, the rent-to-own plan is imperative for the industry to sustain and support its own growth," Shaher Mousali, chairman of Arthur Mackenzy Properties Group, was quoted as saying by ValuStart, a leading consulting and advisory group.
Mousali said that the rent-to-own scheme, which came to the UAE market some years ago, eliminates the entry barriers that hold back many prospective buyers.
Apart from the rent-to-own scheme, developers are also looking up to the long-term payment plans. "I feel a long-term payment plan up to 15 years or 20 years can lift the market and will inspire existing tenants to become a homeowner in one of the best-developed markets of the world," noted Mousali.
Experts also indicated that a recent move towards a more centralised, well-planned strategic approach of government-based developers to address competition with their private sector counterparts could help mitigate the demand-supply mismatch seen during the last few years.
Sizable Contribution To GDP
Last year, Dubai's economy grew merely 1.9 per cent, the slowest since the 2009 financial crisis, hit by the downturn in the real estate sector that contributes 13.9 per cent to the gross domestic product (GDP). In fact, as many as 20,978 residential units were completed in the first half of 2019, according to an estimate by Property Finder.
An additional 38,426 residential units in 152 projects are scheduled to be delivered by the end of the year. However, according to media reports, the number of projects on hold has risen to 980, constituting 28 per cent of all those under construction.
Besides, Dubai recorded a 12 per cent growth in real estate transactions at 106 billion dirhams for the first five months of this year, the latest annual report of Dubai Land Department showed.
There are clear signs of growth in demand for homes in the emirate if latest data is any indication. For instance, off-plan sales in the first nine months of this year touched 16,056 units, against 12,979 units for the whole of 2018, according to a Gulf News report, which cited Reidin-GCP data.
However, there was a marginal decline in average price in the third quarter, compared to the previous quarter, according to property website Bayut. And the slide in property prices is likely to continue for the rest of 2019 and is expected to stabilise in 2020 with no meaningful recovery expected until 2021, according to ratings agency Standard & Poor's.