What does Nakheel’s ‘clearance sale’ represent?
Dubai-based property developer sells 350 newly-launched villas in under five hours.
June 4, 2013 3:04 by Muhammad Aldalou
Earlier this week, Nakheel found itself in the same position Emaar was in more than a month ago – with a long queue of property investors outside its sales office, resembling that of a union rally or concert. In roughly five hours, the property developer managed to sell 350 of its newly-launched properties – part of Legacy Nova Villas, set to be constructed at Nakheel’s Jumeirah Park master community.
The sales raked in a handsome amount of approximately AED1.4 billion and, according to Arabian Business, Nakheel admitted to doubling the number of villas on sale after witnessing a surge of unexpected demand.
Back in the second week of April, when Emaar’s queues were ruthless enough that police forces and ambulances had to be summoned – many applauded the property developer for, once again, bringing back the hype to Dubai’s real estate market. But while the company savoured the aftermath of a cleverly planned PR coup, others tut-tutted and passed judgment. How could we so nonchalantly scurry down the same road? Have we not learned our lessons yet, they asked.
At the time, Kipp Report was repeatedly told (and reassured) – be it by Tasweek, Cluttons or Jones Lang-Lasalle – that jumping to conclusions over what these frenzied sales represent was moot because the sample size of these off-plan sales were “too small” and don’t represent an accurate reflection of the true strength of the market.
Sure, property flippers – selling newly purchased properties within hours or days to make a quick profit – began showing their faces again but only in comparatively small numbers. And as Kipp has been told by Masood Al Awar, chief executive officer of Dubai-based Tasweek, flipping can actually be healthy as it adds additional value to the market, provided it is carefully regulated.
“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 of the riots are playing around the globe as we speak,” said Richard Paul, Head of Valuations at Cluttons at the time.
“It gives the false impression that there is a frenzy of demand and a false sense of the true strength of the market,” said Craig Plumb, Head of Research at Jones Lang LaSalle.
As history repeats itself this week, Kipp is once again reminded that we need not read too much into this recent recurring interest in off-plan sales, because, once again, it doesn’t particularly mean too much for the overall residential market. After all, a report by JLL indicates that there are roughly 40,000 potential new units to be completed over the next two years, and so, when compared to the overall future supply, the numbers of off-plan units being launched are relatively small.
“Even if we assume that not all the mentioned projects will be completed, there is still a significant level of new supply coming to the market and this will temper any pressure for price increases,” he says.
The question of whether these off-plan purchases reflect well on the market can rarely be answered with a simple yes or no, says Plumb. Having said that, he believes the return of these investors can be positive for the overall market as it translates into a return of confidence in Dubai – and so does the head of Residential Valuations at Cluttons, UAE.
Richard Paul reaffirms that while residential values still remain below their 2008 peak levels, the pace of the sector’s recovery has some of the undeniable hallmarks of the start of another cycle of hyperactive growth.
The authorities recognised the signs earlier on this year and introduced a mortgage-cap law for both nationals and expatriates, which will address some of the debt financing issues of the past; however of bigger concern is the fostering of an environment that lures in speculators, who could derail the nascent real estate sector’s recovery.
“As the market is now a lot more mature than it was during the last property cycle, it would be encouraging to see more regulation surrounding resale of property that is yet to be built,” he says. “The signs are all too familiar; and while we welcome the government’s initiatives to support the resumption of growth across Dubai through headline grabbing schemes, we would urge the introduction of laws to sustain a more modest growth.”
The real challenge is, particularly to all those interested in the long term sustainability of the market, is ensuring this confidence doesn’t once again lead to undue exuberance. “It would be a real shame if the lessons from the previous period of unsustainable growth are not heeded, because generally speaking, there is a real danger that the Dubai market will overheat too quickly – and prices will again rise to unsustainable levels,” explains Plumb.
If the market has learnt anything from the past decade, he says, it is surely that an extended period of sustained growth is far more beneficial than a short period of unsustainable growth followed by an inevitable crash.