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Over the past two years, the cost of real estate in Dubai has risen by more than 30%. However, a sharp gap has emerged between the prices at which finished properties are sold and the prices of projects in newly constructed buildings.
Content:
To sell or to hold?
Property owners in Dubai with finished apartments are definitely willing to delay selling, as they find themselves in an unfavourable pricing position compared to units in projects under construction by developers.
According to market sources, owners are better off being patient than rushing to sell. Data shows that for the majority of ready homes, sellers may not get the prices they are asking for. It doesn’t matter where the property is located, whether in the city centre or in more remote areas.
This puts property owners with finished apartments in a difficult position. While demand and property prices in Dubai continue to rise, these potential sellers find that they still need to wait if they want to get close to their desired values.
Record price gaps
In recent months, the gap between the increased in most freehold properties in Dubai, reaching 50% or even more in many cases.
Let’s take the example of Jumeirah Village and Arjan – two of the most sought-after places in Dubai for purchasing mid- to high-range real estate. Here, according to the data from the analytical service Reidin-GCP, the cost difference between finished and under-construction properties has more than tripled – up to 28.65% and 46.19% – compared to 2021.
The status quo remains in super-premium-class areas as well:
- In Dubai Marina, prices for finished apartments are AED 1,410 (USD 384) per square metre, while the cost of under-construction housing is AED 2,550 (USD 694).
- In Business Bay, prices for finished real estate are AED 1,350 (USD 368) compared to AED 2,250 (USD 613) for under-construction.
- In Dubai Hills, one of the most sought-after areas in recent years, the price of a finished villa is almost 60% lower than for under-construction properties.
What explains such a price gap?
Primarily, buyers are becoming more cautious. End-users, the dominant force behind the purchase of finished homes, have been apparent for most of 2021, when the current wave in Dubai’s real estate market began, and the first half of 2022.
Mortgage rates were at an all-time low, and the cost of real estate in the emirate was still declining from the lows of 2018–2020. Many of these buyers had cash to pay a significant portion, and banks were more than happy to finance the remaining.
This was also the time when investors began to enter the local real estate market, and Dubai solidified its status as one of the most profitable real estate markets in the world. These investors are now forced to delay their exits due to the price differential between finished real estate and off-plan.
The price gap between sales of under-construction and finished properties has been growing over the last three years. This trend seems to persist across all market segments.
Reidin-GCP report
Fast forward to the present – mortgage rates have peaked, indicating a decline in buyer demand from end-users. Additionally, developers are becoming excessively aggressive in sales of new projects, which now make up over 70% of the total real estate transactions in Dubai. This means that buyers have more time to pay off or take out a mortgage on a property.
Certainly, over the last two years, the cost of real estate has risen by 20–30%. Investors with finished properties in their investment portfolio can still afford to wait until the price gap between finished and unfinished properties diminishes.
