Dubai’s real estate market has adjusted to more negative market sentiment in Q1 2018, resulting in developers focusing more on affordable options across all segments of real estate. With rents continuing to fall across the office, retail and residential sectors, building owners and landlords are looking to retain their current tenants by setting more competitive prices and offering more attractive lease terms. Prices in Dubai Real Estate market haven’t started their recovery process yet. This mainly due to an oversupply in the market and a subdued demand.
On a positive note, new supply in the market is expected to be lower than previous years. This is mainly due to recent regulation changes and fiscal adjustments introduced in the market.
Developers now have to pay an extra 5% on construction costs after the introduction of VAT (in the case they are not able to sell their inventory in 3 years).
Also the Dubai Land department recently introduced a law (in February of 2018) stating that developers now need to place in escrow 20 per cent of the “total project value”. Developers until now had been used to putting up a bank guarantee (an not actual cash) of the “total construction costs”.
This means that pressure is ramping up on developers in the market as their profit margins are going to be further squeezed, which will in turn discourage them from embarking on new construction projects.