As the Dubai housing market continues to grow, options for investors and end-users to choose from proliferate. Currently, there are over 3,000 freehold projects in the ready space and over 700 in the off-plan market. This wide selection can leave some home seekers and investors perplexed.
A recent study by Unitas Consultancy highlights the buying patterns in the Dubai real estate market. In the ready space, government-sponsored developments has seen a systematic decline of market share in transactional activity as a surge of private sector projects come have come online. In 2010, developments of Emaar and Nakheel accounted for nearly half of all activity, whereas in 2017, it has reduced to 33 per cent.
A comparison between transactional activity of Emaar and Nakheel's ready projects reveals that the former has a higher percentage in terms of value, whereas the latter is a dominant player in terms of volume. The core reason for this is due to the composition of their developments. A large portion of Nakheel's portfolio has been in the mid-income housing market with projects such as International City and Discovery Gardens whereas Emaar has concentrated on the upper-end of the spectrum with Downtown and Dubai Marina.
In the off-plan space, there has been a reversal of roles, where government sponsored developers experienced significant higher growth rates (40 per cent) over the last two years. Emaar is the market leader for residential transactional activity and launches, accounting for 35 per cent of value and 22 per cent of volume in 2017. This highlights the investor confidence in their product and completion rates compared to other developers in the market.
A dissection of ready supply by developers in monitored areas reveals that Nakheel and Emaar account for 36 per cent of housing stock. This highlights the importance of government sponsored developers in the initial rollout of freehold Dubai. However, an analysis of future supply reveals a shift towards other players entering the market, driven by the private sector.
In the current cycle, Nakheel has played a minor role in terms of launching new residential supply. This time around, they have concentrated in developing their retail outlets, diversifying from mega malls to community malls. Given the land bank of Nakheel, we expect this paradigm to mean revert as they increase the scope of freehold offerings in the coming years. On the other hand, Emaar has continued to launch new units, accounting for 15 per cent of the off-plan market.
The dominance of a few developers on building out the infrastructure of new cities can be witnessed in Singapore as well. The Far East Organisation is one of the top developers in Singapore and has rolled out 17 per cent of the entire private housing stock. This statistic highlights the role of premier developers that develop over time as a function of market confidence and track record, a dynamic that has yet to play out on such a scale for private sector developers in Dubai.
The data clearly indicates that there is a disparity between the ready and off-plan market in terms of market dominance. Given the high levels of confidence, Emaar (and GREs in general) dominates the off-plan space, whereas in the ready space, there appears to be private sector dominance. This implies that prices and incentives will remain attractive in the private developer space, exerting further margin pressure. In the ready space, pricing power continues to exist; it is the transition between off-plan and ready that is not being adequately captured either by analysts or data.