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Project costs fall as land, raw material prices drop

Anjana Kumar Emirates Business
Project costs fall as land, raw material prices drop - Property - Real Estate - UAE - Rera


Decline in land prices has led to a fall in construction costs while speculators avoid investing in plots due to new regulations from Dubai's Real Estate Regulatory Agency (Rera), said experts.



According to Rera, a developer has to pay 100 per cent of the land price if he wants to sell units off-plan. Besides master developers are also strictly enforcing regulations that tend to discourage speculators. Land contributes almost 25 per cent to the total cost of construction, experts said, adding decline in prices have led to lower construction costs.

"Land prices have reached attractive levels in different areas of Dubai as speculative activity has gone down substantially," Robert McKinnon, Managing Director of Research, Al Mal Capital, told Emirates Business.

Ronald Hinchey, a partner at Cluttons, said: "Dubai's emerging foreign ownership market has corrected mid-cycle, which may be easier to manage than a major downturn in, say, 2012. The recent international best practice government regulations in Dubai and Abu Dhabi property markets can only add confidence to a market that is moving towards affordability across all property industry sectors, including rental. The medium-to-long-term effect will be more consumers coming to and returning to the UAE, which will be seen to offer a safe and good quality of life at a reasonable and sustainable cost going forward."

According to Hinchey, prime vacant plots at Dubai Waterfront were sold for Dh600 to Dh700 per sqft in the middle of 2008, while plots in Business Bay were selling for about Dh500 to Dh600 per sqft. Land prices at Dubai International Financial Centre in the middle of 2008 were about Dh700 to Dh800 per sqft.

Amr Soliman, CEO of Blu Realty International, said land in Jumeirah Village South is currently selling at Dh110 to Dh150 per sqft compared to about Dh250 to Dh300 in July 2008.

"In Downtown Jebel Ali land prices are getting back to the original levels of about Dh150 to Dh160 per sqft," he said, adding that the current asking price for land on The Palm Jebel Ali is about Dh550 per sqft. "Overall land prices are now going back to 2006-2007 levels, with land prices at Jumeirah Village South and Dubai Waterfront about five per cent lower than the original price."

A recent Landmark Advisory report said land sales prices are likely to fall further by up to 50 per cent.

The study said: "The year 2009 will be an excellent one for land bank accumulation because land prices have fallen significantly in the fourth quarter, as have transaction volumes. Investor confidence, credit scarcity, and the cost of financing have driven down land values."

Landmark Advisory said land prices in the range of Dh50 to Dh100 per sqft would be most likely to attract the attention of investors. "The best locations for purchasing are in well-developed communities and plots surrounded by finished buildings and the year 2009 will yield excellent opportunities for long-term land bank accumulation."

Hinchey said: "Essentially there are two distinct land markets in Dubai – the master-planned special zones where foreign ownership has been permitted since 2004, and the long-established market in the remainder of Dubai where GCC owners have been allowed to buy for decades. We are not expecting this situation to change in the immediate future and we need more time to assess the medium-to-long-term effect on the markets. The non-foreign GCC ownership market is more resilient although we have noticed some modest reduction in land prices.

"However, this may not be the case in areas where vacant plots are a commodity. Again a lack of recent transactional data makes analysis of the market difficult."

Andrew Chambers, Managing Director of Asteco Property Management, said: "We have seen land prices come down in some areas more than others. Prices have dropped less in areas that are more established.

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