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‘Emaar’s frenzied sale gives a false impression about the true strength of the market’
Is Emaar’s confidence-boosting strategy causing more harm than good asks Eva Fernandes.
April 14, 2013 6:57 by Eva Fernandes
Hundreds of people squeeze together. The police turn up with an ambulance on hand. Tempers are rising. A lady faints. A gate opens and people start running helter skelter.
No, this isn’t a political rally or a rock concert, but the scene outside Emaar’s head office. Over the weekend, the real estate developer put 188 off-plan houses on sale for under Dhs1 million for three bedrooms. The townhouses are part of a development called Mira, which is anticipated to be completed by 2016. The greater area Reem is expected to be home to schools, parks, a go-karting track, a rock climbing wall, a skate park, cinemas and an amphitheatre, among other things.
What set the sample sale apart from others was the price: with a two-bedroom villa at Arabian Ranches being retailed for Dh1.8 million, it is safe to say the Mira townhouses were going for prices well-below the market level. It is estimated that well over 800 potential buyers queued up with the hope of snagging a deal. So what is Emaar playing at?
“It was only a sample size of units being offered to the market – which in the grand scheme of things is not many units – but the publicity which they got from it was worth a fortune because those videos are playing around the globe as we speak” said Richard Paul, Head of Valuations at Cluttons.
The logic being, selling 188 units well-under market value with the hopes of recovering costs through other sales in what will be a much larger development. And while the initial interest garnered by such a sale may help boost Dubai’s real estate portfolio, some say it may be potentially harmful for the UAE’s reputation.
“It gives the false impression that there is a frenzy of demand. The rates of growth that we are seeing in the residential sector as a whole are not that dramatic and they are actually slower than they were towards the end of last year. It is not the sort of frenzied growth at this stage, but this picture we are getting gives a misleading impression. It give a false sense of the true strength of the market” said Craig Plumb, Head of Research at Jones Lang LaSalle.
“This kind of publicity will, in some ways, scare people off from other markets who might start thinking “we are going back to the situation we had in 2006 and 2007, and look what happened there,” he added.
According to Jones Lang LaSalle’s latest report, the residential market is growing. While the rates of growth in the residential sector as a whole are not as dramatic as the video may suggest, there is demand and prices are increasing. It is important to note that the quarter-on-quarter increase on all properties in Dubai has only been three percent.
“Potentially, you worry that the serious investors – not just the people who are getting down there because they think that it is a crazy deal and that they can buy and then just flip it in a week – will be turned off by such a stunt. (The UAE) wants to be known in the market as a sensible player and somebody who builds good products for good demand in a sustainable market where people can feel confident they can put their money and their big investments into the region.
“But when you have people jumping queues and fighting and acting like they are at a rock concert, it doesn’t really give you that sense of confidence in the real estate market” said Paul.
Clearly this is a strategy which is being used to use lower prices as bait to get traction and garner. Yet, if Dubai is serious about developing long-term maturity, it is in everybody’s interest that we see a period of sustained growth, rather than a shorter period of rapid growth, which will lead to unsustainable prices and unsustainable rents.