Offload property inventory at discount

More developers in Dubai should offload their unsold inventory at “sufficient” discounts to spark off sales in the primary market, says a real estate expert.

“We want to see more of these offers because it shows that the primary market is become more realistic and, assuming discounts are sufficient, will spark transactions.

Currently, the primary market is stagnating, especially for units still under construction. Of course, this will impact the secondary market, but secondary price declines, especially in outlying areas, were always inevitable,” Jesse Downs, Director of Management Consulting, Jones Lang LaSalle Mena, told Emirates 24|7.

Considering the average market prices have declined more than 50 per cent since the peak, it is not surprising that developers that launched projects during the peak of sale and construction prices have since pushed asking prices below construction cost in order to draw interest.

 “However, it is undecided whether or not these prices will attract investment for this particular project. The strategies adopted by developers will depend on many factors, but are often driven by their own situation, objectives and financial obligations. Selling at a loss today is the rational strategy, especially when the alternative is generate minimal rent income and wait many years for the market to rebound to such a level that justifies an exit,” she added.

Although a number of developers in Dubai have dropped their sale prices by over 50 per cent to push up sales, not many have publicly announced the massive reductions.

Recently, Triveni Builders and Promoters Limited said it plans to sell 20 apartments at its La Fontana di Trevi residential project in Arjan, Dubailand, at below construction cost. The developer is offering a studio for Dh199,000 (Dh480 per square feet), a one-bedroom for Dh399,000 and a two-bedroom, which previously had a price tag in excess of Dh1.2 million in February 2008, for Dh599,000.

Ashok J Galgotia, CEO of Triveni Builders, told this website, the sale of the repossessed apartments at less than half their original prices was aimed to help the company settle final payments of its general main contractors.
 
According to Parvees Gafur, Chief Executive Officer, PropSquare Real Estate, selling at a discount was the personal choice of the developer, but, on a positive note, it does make sense to retain reputation and stay in the market.

“When the market comes back, identity could mean a lot. On a business side, profits from previously ‘sold’ units could be capitalised on the new stock to be offloaded. Moreover constructions costs would have lowered compared to what was anticipated,” he said.

Downs added that sale prices clearly need to be adjusted to the current market rates, regardless of the construction cost, today and properties still under construction – even if they are essentially completed, but not yet handed over – should sell at a discount to completed properties.

Last week, JLL said oversupply continues to hurt the UAE's property market with 18,000 new homes expected to hit Dubai's market by year end. A Reuters poll found house prices in the emirate could drop another 10 per cent before stabilising.

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