Off-plan property sales model unsustainable; return to traditional buying methods evident says leading UAE developer

Traditional property sales move UAE market

Off-plan property sales model unsustainable; return to traditional buying methods evident says leading UAE developer

Traditional business models that market new properties are gaining in popularity and beginning to generate more sales than off-plan projects, according to a leading United Arab Emirates property developer in UAE.

“Off-plan property sales have proved to be unsustainable,” said Mohammed Nimer, CEO of MAG Group Property Development, which is involved in AED3 billion of developments in the UAE.

“With so many projects heading toward completion and with little difference between the prices of completed and off-plan properties, why would a bank or an owner-occupier take any sort of risk, a completed property is tactile and ready to move in.”

“Sales enquiries for off-plan property have been stagnant now since the third quarter of 2008 – completed properties are however starting to show signs of life,” Nimer added. “Buyers now have the ‘luxury’ of inspecting the actual villa or apartment that they are considering purchasing - no longer are investors risking capital on the basis of an artist’s impression and a salesman’s promise.”

“It’s also interesting that unfinished property prices have fallen further than those for completed apartments and villas,” added Nimer.

“Everyone in the property business today is going through challenging times,” Nimer said. “Prices, targets and ambitions have dramatically altered. But overall the market will benefit from a more rational approach to real estate investment as opposed to the speculative market model of 2007 and 2008.”

The collapse of the off-plan property model affected not only the UAE but other more developed property markets such as the UK and Spain. Those markets moved away from their traditional property buying methods and have seen similar declines with small investors often left holding property with negative equity.
“Mature property markets have turned away from the off-plan model and returned to the traditional buying methods. This means a property development is fully financed by a combination of sophisticated private equity investors prepared to take the risk and the banks. The end-user, or owner-occupier, does not become part of the transaction until the very near completion of the building.

“This means that the risk of a development being abandoned in a tough selling environment is reduced as both the developer, the private equity investor and the banks are too exposed to do anything other than complete and handover the property.

‘In the boom years, we saw small investors take the place of professional private equity investors and, in many cases even the banks, to finance property development with the results we see today. With banks now having little appetite for high risk investments, off-plan is an unsustainable business model - the future is the traditional, completed property transaction.”


Photo caption: “Off-plan is an unsustainable business model - the future is the traditional, completed property transaction,” says Mohammed Nimer, CEO of MAG Group Property Development.


About the MAG Group
The Dubai-based Moafaq Al Gaddah Group of Companies (the MAG Group) was established in 1978 and has grown into a multinational organisation with 18 offices in eight countries throughout Europe, the Middle East and Asia.

In the last five years the MAG Group Properties has invested in 12 properties at various stages of development across the residential, commercial and industrial sectors. The company focuses on projects that provide long-term benefits to investors and customers.

In total MAG has a property portfolio in excess of AED3 billion and was one of the first developers to create Escrow accounts for all of its projects, long before the Dubai Government introduced Law number 8. In October last year, MAG Property Development was awarded ISO 9001 certification by risk management company Det Norske Veritas (DNV). MAG still remains one of the few developers in the region to be accredited to that standard.