Distress’ Sales Pushing Land Prices Down in Dubai
Dubai’s land values have dropped sharply this year – but that’s still not helping developers to launch new projects. If land costs made up 20-25 per cent of a project’s overall costs at the market’s peak, the land component has slipped to as low as 9-10 per cent. In the last two years, this had been hovering in the 15-16 per cent range.
Distress sales don’t just hurt property values – they do the same with land. In a way it’s good because this takes away all those non-serious players from the market. These adjustments on land values, however disruptive they might be, is something the market and well-funded developers can absorb.
Some private developers had been calling for a level playing field between private and government-owned developers. There have been calls for some softening in the requirements related to land purchases, specifically the one that says developers must pay off land costs in full before they can launch a project.
Deflating land values might help with building up a land bank, but private developers still have a fight on their hands. The biggest issue most of them face is having access to bank finance. And because private developers are seeing less funding come their way, their prospects to launch new projects gets stymied. Even with land values dropping, there’s still the 90 per cent of the project cost they still need to find. This explains why there’s been such a sharp drop in new capex (capital expenditure) from private developers.