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Date: 29/09/2010
Real Estate Prices To Stabilise On Back Of Dubai Disclosure

Realty experts in Dubai believe the disclosure of 495 properties either being cancelled or put on hold will limit supply in an already bloated market and help prices stabilise.

“It’s good news for the industry and will have a positive impact, since now we now the number of projects that have been put on hold or cancelled,” Craig Plumb, Head of Research, MENA, for Jones Lang LeSalle, told.

In its updated bond prospectus, published on the London Stock Exchange, the government of Dubai said 495 of the registered projects have either been cancelled, or in process of being cancelled, or on which work has otherwise stopped.

According to Plumb, the announcement was in line with the estimates of JLL, which has estimated that half of the projects in Dubai have either being cancelled or stalled.

“We have spoken about mothballing projects in our last report which will help in reducing the future supply.”

Earlier this month, the global real estate consultancy advised developers to consider the "mothballing" option to reduce future supply.

Mothballing involves stopping the construction of projects where development has already commenced, with the filling in of holes in the ground and the weatherproofing of partially completed buildings.

Mohanad Alwadiya, Managing Director, Harbor Real Estate, echoes the same sentiment.

“It’s good news for the market as we now know the number of projects that are being cancelled or put on hold. The expected oversupply was putting pressure on prices, but clarity on supply will help prices stabilise and secure investors,” he added.

Asked if property prices will decline further next year, Plumb said: “We are getting close to the bottom… the rate of decline is slowing down but prices are still falling.”

Alwadiya added it was difficult to predict when the market will recover, but limited supply will help stabilise prices and revive investor sentiment.

In May 2009, this website had reported that Real Estate Regulatory Agency (Rera) had set up a special committee to decide which construction projects should be cancelled amid the current slowdown in the real estate sector. However, the agency has not yet officially announced any project cancellation.

The Executive Council’s Decree No. 6 of 2010, which was issued recently, provides regulations that address potential defaults by purchasers of off-plan real estate in Dubai and authorises Rera to cancel real estate projects in specified circumstances.

In the event that a real estate development project is cancelled, the law provides that the developer is required to refund the entire purchase price paid by purchasers until the date of cancellation.

The law further provides for remedies for the real estate developers that are tied to the progress towards completion of a project by the relevant developer.