Dubai land prices are 50% cheaper than in 2008

This is a good time to go hunting for prime land plots that are almost impossible to buy when the market is booming, according to industry stakeholders.

The average land sales price in Dubai currently stands at Dh325 per sqft - this is an average across both freehold and leasehold areas, according to data provided by Reidin. This compares with Dh700 to Dh800 per square foot in 2007-2008.

The average transacted price per sqft for a land plot in Downtown Dubai and DIFC currently stands close to Dh2,000 per sqft. Meanwhile, the average price per sqft for a land plot in International City stands at Dh250 per sqft, according to Reidin data.

"That means huge savings in outlay and a properly planned development strategy can maximise the return on investment. Investors are taking advantage of the current low cost of prime land in Dubai to exploit profitable opportunities for development. Investors who fail to study the market in detail to ensure they pick the right plot and devise the correct development plan can destroy profits," says Firas Al Msaddi, CEO of fäm Properties.

Land values generally track the performance of the asset that would be built on it. Many Dubai land values have fallen in recent years, reflecting the downward trend of most real estate classes in the city, observes Declan King, managing director and group head - real estate at ValuStrat, a property consultancy.

Land values in Dubai are usually analysed on a AED rate per sq ft of permissible gross floor area (GFA) of the proposed development. As such, developers relate land price to the gross development value that the finished project will yield upon sale, and the costs in bringing it about.

"Land prices in Dubai have been competitive in recent times. It offers good opportunity for anyone willing to start a new project," explains Sailesh Israni, director of Sun and Sand Developers.

Constructions costs
Lower constructions costs is another factor which makes the present time a good one to buy and develop plots in Dubai. This is the ideal time to go hunting for plots that are almost impossible to buy when prices are sky high and contractors and consultants are not as flexible as they are today.

"More competitive bidding is now taking place for build contracts - especially for larger projects with key developers," shares ValuStrat's King, adding: "Both contractors and consultants are open to negotiation - especially on key longer-term contracts with reputable developers. Service providers are keen to win longer-term jobs and benefit from the regular cash flow, staff utilisation and client credentials such engagements can offer."

Offering a developer's perspective, Israni says contractors and consultants are happy to offer competitive prices but only if they have confidence the developer has project funding secured and he will complete the project in time. "Contractors and consultants are wary of delays in payments," he adds.

The sharpest declines in land values over recent years have been in some of the more secondary new housing locations.

"I don't expect to see land prices appreciating in the short term. Selling a plot today comes at the cost of taking a hit on the selling price, regardless of its location, and this is creating opportunities for a new generation of buyers. They are investors who are thinking medium and long-term, or have the appetite to develop as soon as they acquire the plot," comments Al Msaddi.

When a master developer sells land, they incorporate the cost of infrastructure to make the land usable - roads, power, water, street lights, community spaces, etc.

"Current prices are near the sale price that master developers offer in most places and at a minimum premium in certain areas. If, however, land was sold in the secondary market at higher prices, then you get speculative figures. The analogy is if a raw material is at a competitive price, the finished product will be available at good prices. The credit also goes largely to the Real Estate Regulatory Agency for its effective policies that reduce market speculation. Now, only those buyers invest in land who intend to build a project on it," reckons Israni.

- deepthi@khaleejtimes.com

Deepthi Nair

deepthi@khaleejtimes.com