It can be observed that there is a price increase in real estates in Dubai where they are past Ready To Move And off-plan property are overpriced with each other. More interesting and worrisome is the evolution of a wide price gap in the off plan market, where the primary and secondary sale prices are showing signs of variance indicating change in the market.
Price Gap Widens for Dubai’s Off Plan Properties: What’s Behind the Surge?
In the Dubai real estate market, the price difference between primary sales and secondary off plan sales has been increasing sharply in 2023. As primary sales keep reaching new highs, particularly in markets like JLT , Dubai Marina, Business Bay , and Arjan, a huge gap has developed. This gap can be explained mostly by the rising trend in the commissions offered by the developers as well as the comprehensive payment plans that are pushing prices upwards.
Primary vs. Secondary Off Plan Sales: What’s the Difference?
Currently, in a number of leading regions, the secondary off plan prices are now lower than the primary prices by a margin of as much as -20% and in most regions, this widening gap indicates that the real price discovery is occurring in the secondary market where such properties are offered for sale by the investors with a need to sell those investments fast under the agency of ‘distress’ sale.
Key Drivers of the Price Gap
- Enhanced Developer Commissions: The growing differential has been further fuelled by the improved commissions offered by developers in regions such as Dubai Marina and Arjan.
- Liberalized Payment Plans: Buyer’s more leverage is used due to the prolonged payment plan offers which developers are extending recently causing an escalation in the primary off plan prices.
- Flippers Selling Off Their Stock: A lot of investors who purchased properties to sell for profit are now dumping them on the market at prices lower than the acquisition price, mostly because the payment plans become too unbearable.
Price Trends Across Major Areas
Regardless of the significantly varied land costs within the Emirates, starting from Ras Al Khaimah and ending in Business Bay, the off plan rates can be seen in the range of AED 3000 to AED 3500 per sq ft. Developers pricing such rates implies that they are not clearly valuating the land on which construction is taking place but rather pegging the prices to the intended payment plans.
Potential Market Corrections Ahead?
Despite off plan sales remaining strong, it is apparent that the market is becoming overly speculative:
- Distressed Sales- Increasingly, more and more properties are being sold at cut-throat prices in the secondary market.
- Lagging Ready Sales- Offplan sales have registered tremendous growth, ready properties are still in tight supply, indicating that investors will soon focus on finished units to take advantage of price differentials.
- Anticipated Drop in Prices- If trends persist as they are, a shift in investor behavior would be anticipated where off plan prices would fall on the basis of developers correcting their pricing in relation to demand.
Investor Takeaways: Is the Boom Sustainable?
- Appreciate the Risks: Whenever investors make the decision to chase after ‘effortless wealth they should know how much money they are ready to put at risk.
- Greed vs. Fundamentals: On the one hand, the real estate market in Dubai has demonstrated a very strong and healthy resistance to shocks from the outside, however, investors should keep in their minds that there is a price correction that will follow whenever the markets run away from the economic realities and fundamentals.
