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Growth in off-plan property sales reflects robust demand and confidence in GCC real estate market

Dubai records 50% rise in off-plan transactions in H1

The nature of real estate demand in the GCC states differs from that in other property markets across the Middle East and North Africa (MENA) region and the world over, especially in the markets that follow the open market system and introduce freehold laws and regulations for non-citizens.

In its weekly real estate report, Al Mazaya Holding mentioned that the demand for off-plan properties is one of the most important indicators that gauge confidence and recovery for real estate sectors in GCC states, while other property options are available as well to meet different types of demand and incomes.

The diversity seen today in real estate products, including regular to medium to high-end, and the difference in prices according to location and classification, invigorates the real estate sector. It adds to the abundance of excellent investment opportunities in different categories, not to mention the favourable legislation and laws governing this business, and the effective role they play in protecting the rights of all parties concerned.

The report pointed out that off-plan sales and purchases have their pros and cons, noting that weaknesses must be minimised whenever possible to ensure the continuation of the current momentum enjoyed by this type of business thanks to its positive impact on the property market.

One of the most significant advantages of the off-plan system is the provision of low-cost financing to developers and creation of real estate products at competitive prices to buyers, as well as the availability of payment options less similar to specialised financing channels, said the report. It added that the off-plan system enables buyers to secure capital gains upon resale after property delivery, while developers usually offer discounts ranging from 15 per cent to 20 per cent to encourage investments and help secure initial project costs. Off-plan-associated easy payment options are another positivity added to other advantages, including the possibility of getting best available units within a project in advance.

On the other hand, the report said that off-plan properties still, however, carry risks despite the remarkable progress achieved by the laws and regulations governing this sector, which have been able to deal efficiently with these investment options after the negative results recorded due to the lack of laws preventing buyers from transferring ownership of unfinished property. Speculations used to have a profound negative impact on the real estate sector in many of the region’s markets during that time.

In addition, the inability of the buyer to identify the final product is a disadvantage of off-plan transactions, which leaves the buyer with only one option, i.e. to rely on the developer’s reputation in the market. The difficulty of getting access to finance for unfinished properties is an additional challenge for buyers of this type of property, specially in case there were no arrangements made between banks and developers to provide exclusive financing options.

Other challenges are the difficulty in determining the final delivery date, because of liquidity-related challenges, which may result in a buyer’s inability to move and live in the contracted property.

The report said that the UAE market in general and Dubai, in particular, took the lead in launching the off-plan concept and also took the initiative of introducing robust laws and regulations that prevent speculations and any imbalance in the forces of supply and demand, including property prices. The report highlighted the efforts which have been and are still being made to regulate the work of real estate agents region-wide, given the significant impact of this sector on the stability of the real estate market as a whole.

According to available data, the total value of off-plan transactions conducted in Dubai during the first half of this year is estimated at AED18 billion worth of selling 9,734 apartments and 2,794 residential villas, with the pace of activity recorded during H1 registering a rise of 50 per cent as compared to the same period of 2016. The report underscored the need to comprehensively consider the recorded data on account of its impact on improving investor confidence in the real estate market in the Emirate of Dubai and boosting positive sentiments in the construction sector and ultimately enhancing growth.

The report added that off-plan sales in the Saudi market are progressing gradually, while there is still a need for improving legislation for the market to be able to compete with other markets in the region. The total volume of off-plan sales across the Kingdom is valued at SAR48 billion. This comes within the programmes launched by the Ministry of Housing to increase the supply of housing units, which, reflects the positive effects the off-plan system has on real estate developers and construction companies.

These programmes also aim to reduce the cost of owning residential units for Saudi citizens, ensure transparency in the real estate market in the Kingdom and stimulate competition among developers. State departments in KSA are working to ensure full protection of the rights of all contracting parties, making it incumbent on real estate developers to conform with the models and specifications agreed upon in advance with their clients– measures which are likely to develop the construction sector and reduce speculations that have their bearing on projects and final prices.

Al Mazaya believes that the off-plan system is of more importance to real estate developers than to buyers and the market as a whole. The success of real estate developers in selling part or the entire project depends mainly on the developer’s reputation in the local or regional real estate market. Therefore, the developer who aims to embark on off-plan projects must build confidence-building measures with clients all through the implementation stages.

The existence of integrated mechanisms and efficient programmes to evaluate developers’ plans and enable buyers to learn from past experiences of developers would earn this business more transparency and stimulate developers to ensure faster and efficient execution of projects.

In addition, developers’ compliance with all legal requirements and procedures in accordance with relevant regulations will play a significant role in providing financing for the implementation of projects as planned. It is noted here that the authorities and departments concerned in Dubai obligate the developer before starting the sale, to own the land of the entire project and open a trust account where 20 per cent of a project’s estimated value is deposited along with the funds paid by the buyers.

The report stressed the fact that the decline in speculators’ dollar in the regional markets and the tightening of relevant laws have directly contributed to the development of the off-plan sector and the credibility and pace of its activity to the moment. The report explains in this respect that end-users now account for the largest percentage of demand recorded in the real estate markets in the region, which means more stability in prices and ultimately more protection of the rights of customers and buyers in the first place.

The report highlighted that the continued growth of off-plan sales has contributed in one way or another to maintain a positive momentum in the construction sector in the region.

As per circulating data, contracts during the first quarter of this year recorded a decline of 17 per cent compared to the same period last year. The construction sector in the UAE property market comes on top with contracts worth $10.8 billion, followed by the Saudi market with contracts worth $4.7 billion over the same period.