It is more than a month since Cityscape Dubai event drew curtains for this year – an event which attracted close to several thousands of visitors and record number of local and international exhibitors which set the real estate industry buzzing with new product launches, market analysis and survey reports.
Having been a visitor to couple of earlier Cityscape editions, I made this year’s visit on the last day afternoon. Somehow, I felt the buzz which was created in the lead up to the event was not evident going by action in the display stands. Yes, there were quite a number of visitors in the stands of major UAE developers showcasing their current and future projects in the main hall exhibiting area but the crowd level was low in other stands and in the extension area where several international developers and real estate service providers were located. Some of the project and building designs were a visual treat – fantastic creativity.
But then it got me thinking –
Firstly, did I get my visit to the exhibition at wrong time of the day? I convinced myself that being the last day people would normally flock in droves especially throughout afternoon until late evening. Secondly, do people really make property buy decision during an exhibition? I guess some would, if they are convinced that investment option is really attractive. I spoke to few of my friends later and majority responded that they would not buy an end-use home during an exhibition, as this would normally involve joint family consultation. Presumably, the sales team of developers would keep track of potential customers where contact details have been exchanged during the visit and do further follow up for deal closure or otherwise. To my surprise, most of the developer stands I visited and exchanged business cards did not bother to do follow up emails/calls.
Thirdly, would some of those stunning developments have taken into consideration cost of maintenance? Creation is one part but the asset must be well maintained to last its life. Certainly, the buyers would need to consider paying sizeable amount of service charges for upkeep and maintenance. Fourthly, would there be enough buyers for the projects showcased as most of them were in the luxury or affordable luxury segment? Since Dubai real estate market is predominantly investor driven and not end-users and more aligned to international market movements, I expect some developers would face challenging times when the market slows down and investors funds goes for allocation elsewhere. We are already seeing advertisements for off-plan developments being resold in the market at zero or low premium to original price. Since customers are paying through own equity for off-plan projects, developers must ensure robust collection mechanism is in place. Developers should also consider carrying out customer due diligence prior to sale as this would enable to have a better understanding of the customer and their financial position.
It was interesting to see a development which had claimed their project was sold out was offered immediately thereafter for sale by a real estate agent at launch price i.e. without premium. More interestingly, the same product was offered at the exhibition by the developer. In the meantime, the developer was talking up the project and getting some fantastic PR through media coverage! During my conversation with the industry players, I realized that some developers resort to striking deals with real estate agencies on bulk basis at special price and consider it as sale. Apart from when to consider “sale” being driven by relevant accounting standards and policy of the developer, longer sales cycle and longer collection period must be factored into project stress analysis to understand the impact of such variables on completion.
Post Cityscape, quite a number of market analysis reports have been published by industry experts confirming that Dubai residential real estate market is witnessing lower transaction volumes and price reduction in select developments and lower rental growth. Affordability of homes either for purchase or rent is becoming an issue with sky-rocketing prices particularly on the back of Dubai winning its bid to host Expo 2020. I believe this price correction is healthy for sustainability of the market and likely to continue for some time.
Whilst this change is happening, investors have been moving their allocation within real estate to other sectors such as hospitality, office and industrial and I am getting ready for cooler months!
Disclaimer: Any of the opinions expressed in this article are my own and solely reflects my personal views in my individual capacity. Any comments left about this article by others represent their own personal views, and not my own or anyone related to me. I do not necessarily endorse their opinions by allowing inclusion of their comments on this article.