With a DJ pumping out ambient music and a buffet large enough to feed a village, all aboard a yacht sailing around the azure waters of the Arabian Gulf, Azizi Developments became the latest Dubai developer to pull out all the stops in an attempt showcase off-plan luxury apartments.
Using a press conference and marketing shindig aboard a 125 foot superyacht sailing from Dubai Marina, Azizi attempted to lure potential investors to shell out between Dh2.2 million and Dh4.5m on a block of 90 partly-built apartments on Palm Jumeirah.
As long-legged Russian models milled around the boat offering soft drinks and Azizi staff directed some 200 VIP guests to study a large, twinkling scale-model of the development between the Anantara and the Viceroy hotels on the crescent of the Palm, there was little talk about Dubai’s second property squeeze in six years.
The falling price of oil and the strong US dollar to which the dirham is linked has hit the housing market in Dubai, pushing average prices down by about 15 per cent in 2015, brokers report.
Last month, KPMG predicted that prices will continue to fall throughout 2016 pressured by political unrest in parts of the Middle East and economic uncertainties in China and further depressed by government budget cuts and job losses precipitated by global oil prices far below their mid-2014 levels.
Brokers say that the difficult market is already hitting Dubai housebuilders hard. According to the property broker CBRE about 6,000 nearly-completed homes in Dubai are currently sitting empty as developers wait for prices to stabilise before they can even think about attempting to sell.
But that picture of job cuts and price falls seems a very long way from the boat parties and lavish project launches still taking place in the emirate.
Despite the price falls, Dubai developers have continued to market a flurry of new off-plan homes amid what seems to be ever increasing levels of opulence.
Last month, Dubai-listed Damac Properties announced it was planning to build its Dh7.4 billion Aykon City – six new towers of hotels, apartments and offices overlooking Dubai Canal and Safa Park.
The development will include an 80-floor hotel with hotel apartments and a tourist attraction in which consenting adults walk around the perimeter of the roof, a 63-floor tower of hotel apartments, a 65-floor office tower and two 30-floor towers, each of which will be home to “ultra-luxury” flats.
Construction will begin in the summer and should be complete by 2021. Damac will shortly begin to sell off-plan properties in the development, it said.
Emaar and Meraas, meanwhile, have started marketing Sidra Villas, a new neighbourhood of posh three, four and five-bedroom villas that local agents say are being sold for between Dh900 and Dh1,000 per square foot. In addition, Dubai Properties Group has also launched its 8.2 million square foot Serena development to be built in Dubailand. Azizi’s new Dh350m Royal Bay Residence block is just the latest in the company’s Dh4.5bn Dubai development plan, which is expected to complete eight blocks of apartments in Al Furjan in 2016 and also plans to launch a second apartment building of another 180 apartments on the Palm later this year.
All of this begs the question: if the market is so tough, why are developers still willing and able to press ahead with launching new projects?
Certainly when asked outright, developers, as always, talk up the market with perhaps overstated optimism.
“We are in a very healthy phase of the property cycle,” says Farhad Azizi, the chief executive of Azizi Developments. “The next few months will see market stabilisation and then the economy is going to recover very fast by mid-2017. These are good times for buyers to invest in a good location and good property to make a profit and capitalise on quick price appreciation.”
Azizi says it gets most of its development capital from its oil and gas business in Afghanistan, which imports from nearby Kazakhstan. It says this business has not been overly hit by the fall in oil prices because it does not produce or refine oil or hold assets for a long time. Brokers, on the other hand, suggest that larger government-owned or well capitalised developers are pressing ahead with marketing launches at the moment simply because they expect to face less competition from smaller rivals. New launches are being paired with generous payment plans and income guarantees.
“These sort of deals are the sort that only the big developers are able to afford to do,” says Sanyalak Manibhandu, the head of research at NBAD Securities. “Effectively, what they are doing is pricing smaller Dubai developers out of the market.”
If the property slowdown continues, however, or sales continue to slow, Mr Manibhandu suggests that some of the development timelines could be extended or projects could be re-phased.
Another, perhaps more compelling, reason why some Dubai developers are able to continue with expensive marketing launches during a downturn comes from a quick look at company accounts.
According to the listed developer Damac’s latest results, the company last year booked nearly Dh500m in penalties from customers who, in the years since the global financial crisis, had walked away from their off-plan home purchases – a more than twenty-fold increase on a year earlier and a significant chunk of the Dh4.5bn annual profits it reported in 2015.
Hazem Abdallah, the vice president for investor relations at Damac, says that the company had not been able to translate the lost deposits into cash flow in the years since because it had taken a long time to get around the red tape involved and also the developer wanted to give buyers who had opted to walk away from their purchases during the previous downturn a chance to change their minds.
He says Damac is in possession of even more cash from deposits forfeited by purchasers during the previous downturn, which it intends to realise as profit over the coming years.
Analysts say that listing profits from forfeited deposits is not a regulatory requirement and only a few UAE developers currently show these figures in their results.
“Although Damac is one of the only companies to show this income stream in its books, it is likely that most of the big developers who were around at the time of the global financial crisis will have similar sorts of cash left over from forfeited deposits,” says Loic Pelichet, an analyst. Others point to the need for Dubai Government-linked developers to press ahead with plans for mega developments such as Dubai South, even during a property downturn.
“Even at the moment, with the oil price low, the Government needs to press ahead with plans and to think up new ways to keep the economy growing,” says Matthew Green, the head of research at CBRE’s Dubai office. “They can’t afford to stand still or competitors will start to close the gap.”
Back on the Azizi yacht, however, potential investors invited on board by the developer seemed unconcerned about the current tempestuous waters through which Dubai is currently sailing.
“I would need to analyse the figures more carefully before I made a final decision but Azizi’s offering seems very tempting,” said Sharam Gulzad, the chief executive of Gulzad Group, which invests in property around the world.
“We have made money in the past by buying in the most prime areas during a downturn. They usually tend to be the fastest to recover and so we hope this will be the case in Dubai, too.”
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