Off-plan properties in Dubai command highest premiums ahead of handover

Villas and apartments nearing completion in Dubai are generating premiums of as much as 70 to 200 per cent a year, according to observers of the property market – far higher than the 10 to 30 per cent annual premiums for completed properties.

"Properties that are commanding the highest premiums in the market are currently those nearing completion. Take Jumeirah Lake Towers for example – the increase has been not less than 70 to 80 per cent in the last six to eight months, even before hand-over began on the development. These premiums are one of the highest in the market – higher than even completed projects," said Amr Soliman, chief executive Mena of Blu International Realty, a United States-based brokerage firm with representative offices in the Middle East.

"Generally prices make the biggest jump upwards starting six months before handover until six months after it," he said.

Adham Roshdy, director of sales for residential properties at Dubai-based Coldwell Banker, said: "Nine out of 10 residential property buyers in the market prefer to buy off-plan."

Agreeing with him, John Davis, chief executive of Colliers International's Dubai division, said: "Potential profit on off-plan properties is said to be higher than profit on completed projects, owing to favourable payment plans for first-time buyers."

At the Villa Project, a development by Dubai Properties and Mizin in Dubailand, which is due for handover by the first quarter of next year, prices have appreciated more than 200 per cent in the last two years.

"The handover of the project was delayed by two years. During that time it appreciated at a stable five per cent per annum. Suddenly, starting one year before the project's completion, prices have escalated by more than 100 per cent," said Soliman. "In January 2007, a four-bedroom villa in the Villa Project was Dh2.5 million; now it is Dh5m – a 100 per cent in increase in a year and a half."

The price per square foot at the Villa Project was Dh550 to Dh650 at the end of 2006 for a three-bedroom villa. Now it is in the region of Dh1,000 to Dh1,050 a square foot – a 90 to 95 per cent increase. A five-bedroom villa was Dh3.6m in December 2006; now it is Dh8m – a little over 100 per cent in a year and a half.

For villas at the Al Barari project in Dubailand, the premium has been 200 per cent on off-plan for two years. "The villas selling at Dh12m are now going for Dh36m," said Basel Al Kasem, CEO, Al Basel Group.

The Falcon City project, the Legends, and villas in Al Barari are some villa projects to look out for, as they will be ready for handover by the end of the year and the process will continue until the middle of next year.

"In off-plan properties a good payment plan comes from the developer who gives enough leverage to the buyer to flip his property around," said Roshdy further confirming last week's report by Standard Chartered titled Dubai – A tale of two housing markets.

Another factor in consideration for a buyer is that when he buys in the secondary market, he also buys into the payment plan of the previous owner and premiums have to be met by the buyer himself sometimes.

"Asking prices on villa projects that are not yet complete, such as the Jumeirah Park project or the Jumeirah Golf Estates, have increased by around 75 per cent," said James Knowles, director for sales and leasing, at Asteco Property Management.

"The investor market for off-plan or under-construction purchases remains very strong. There is still value in projects purchased off-plan where discounts against completed values are expected to compensate for the timeline for delivery before the property can be lived in or used as an income producing asset," said Knowles.

Further, within off-plan properties, apartments have been earning a higher return on investment than villas depending on the location and developer, according to Dubai's brokers.

"This has been happening because people are looking keenly towards ready apartments," said Basel Al Kasem, CEO, Al Basel Group.

"The Golf Towers by Emaar – a twin residential tower development overlooking the Emirates Golf Course due for completion in four to five months – has already achieved a 200 per cent profit since its launch two years back. The interest on the tower escalated further towards handover time," he added.

For off-plan apartments in Dubai Marina, the price per square foot was in the region of Dh800 to Dh900 two years ago. Now it is Dh1,500 to Dh1,700 per square foot, showing a 90 to 95 per cent increase, said Al Kasem.

Apartments at Dubai Marina were Dh800 to Dh900 a square foot two years ago and are now going for Dh1,500 to Dh1,700 a square foot. Localities such as Jumeirah Lake Towers and the Burj Dubai area, where apartments are due to be delivered in August and September this year, have seen 70 to 80 per cent price hikes.

Property brokers and analysts in Dubai are almost certain that prices of completed projects in the market are now appreciating only 10 to 30 per cent per annum.

According to Colliers International, a completed three-bedroom villa in The Meadows appreciated only by 30 per cent at the end of the second quarter of 2008, while the same property appreciated by 51 per cent in the second quarter of 2007.

"A completed two-bedroom apartment in Dubai Marina has so far appreciated 19 per cent in the second quarter of 2008, as opposed to 41 per cent in the second quarter of 2007," said Davis.

According to Blu International, in Arabian Ranches a three-bedroom villa was Dh2.8m last summer (July-August). It is now Dh3.8m, appreciating only by 26 per cent in the past year.

In Arabian Ranches again, the townhouses in Balmera were Dh2.8m in the first quarter of 2007. By the end of the year their prices had jumped to Dh3.3m. Now, at Dh3.8m, the increase has been 20 per cent since then.

Blu International says newer projects in Dubai will have higher values attached to them since they will have better finish and more advanced technology.

"By end of this year, you will not find any unit in the market that will be less than Dh1,400 to Dh1,500 a square foot. The Crescent in Palm Jebel Ali will not be less than Dh2,500 to Dh3,000 a square foot. At Meydaan and Dubai Maritime City, prices will be in the region of Dh3,000 to Dh4,000 per square foot by end of 2008," said Soliman.