Dubai starts to bring out its dead property projects

The Dubai Land Department and Real Estate Regulatory Authority has established a joint committee to cancel property projects which it judges to be ‘unviable’, reported officials who told Emirates Business 24/7 that this is ‘a tedious task and requires a lot of paper work’.

That will no doubt be the case. But this will also be the end-of-the-line for the Dubai dream of some would-be property owners who have forked out deposits on projects that are not going to happen. Apparently an amendment to Law No13 regulating the Interim Real Estate Register in Dubai now allows officials to cancel projects that they deem ‘unviable’.

Further detailed regulations for Article 11 of Law No13, that establishes conditions for the cancellation of off-plan projects are going to be announced soon.

Serious solution

The Dubai Government is clearly serious about sorting out the mess that has been left behind by the collapse of the off-plan property market in the emirate. Off-plan property has become highly illiquid – i.e impossible to sell – because the price of completed property has plunged and many finished units are available.

In February the RERA CEO Marwan bin Ghalita announced that around 25 per cent of projects would be cancelled because developers either had not started them or never intended to begin. But the mechanism by which these units would be removed from the market was not explained, and indeed is still been formulated.

Yet Dubai is going to grasp this nettle. It will obviously be a ‘tedious job’ indeed with perhaps hundreds of projects to consider on an individual basis, along with their buyers. But the faster and more efficiently it can be done the sooner the Dubai real estate market can be restored to health.

Upcoming over-supply

There is still a huge over-hang of upcoming property set to enter the market over the next couple of years. RERA estimates 31,000 units will be completed this year and another 43,880 in 2010, although about 20 per cent of 2009 units could roll into the following year.

This is a lot of new supply for the market to absorb at a time of static and probably falling population, with Dubai in a recession. It is likely to keep prices and rents under pressure, as well as creating a demographic shift from commuter zones to the newer areas of the city.

In truth property prices and rents are unlikely to show much improvement until this process is completed, and the shadow of the off-plan disaster removed. And if the global economic situation deteriorates further then the property slump will last even longer.
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