Developers look to quit projects as costs soar
Skyrocketing construction costs are forcing Dubai real estate developers to buy back properties from investors as projects become financially impossible to complete.
A number of developers have said soaring labour and raw material costs mean projects launched several years ago are no longer economically viable, UAE daily Emirates Business 24/7 reported on Tuesday.
Developers that sold units in off-plan projects two years ago are now finding the revenue is not enough to cover the cost of construction, the newspaper said.
Developers told the paper it did not make business sense to build something for 1,000 dirhams ($272) per square foot after it was sold for 600 dirhams per square foot.
The problem has so far been limited to the smaller, more inexperienced developers, according to the paper.
The report comes after Dubai-based Damac Properties last month cancelled a 25-storey beachfront development on the Palm Jebel Ali.
Damac had said the cancellation of the Palm Springs project five years after launch was due to "redevelopment of the plots".
The decision sparking outrage from investors who threatened legal action after the developer offered compensation well below current market value.
Damac has since told investors said it will go ahead with the project, according to a statement on an investor group website.
The developer also changed its mind about the cancellation of its Haz Tower in Business Bay last week, after investors complained about its plans to pull the project.
The Real Estate Regulatory Agency (Rera) has said the problem has so far been limited to Damac.
"We have not received any other complaint from investors about developers buying back properties. But if we do, we will definitely investigate the issue,” Marwan bin Ghelaita, CEO of Rera, told Emirates Business.
Many analysts are talking about a looming crisis in the construction industry has the cost of raw materials, particularly cement and steel, continues to climb.
Construction costs rose at about twice the rate of inflation in 2007, up around 20% according to research from international consultancy EC Harris. The price of steel reinforcement rose by 46% and structural steel gained 38%, while cement prices ended the year 30% higher.
A number of developers have said soaring labour and raw material costs mean projects launched several years ago are no longer economically viable, UAE daily Emirates Business 24/7 reported on Tuesday.
Developers that sold units in off-plan projects two years ago are now finding the revenue is not enough to cover the cost of construction, the newspaper said.
Developers told the paper it did not make business sense to build something for 1,000 dirhams ($272) per square foot after it was sold for 600 dirhams per square foot.
The problem has so far been limited to the smaller, more inexperienced developers, according to the paper.
The report comes after Dubai-based Damac Properties last month cancelled a 25-storey beachfront development on the Palm Jebel Ali.
Damac had said the cancellation of the Palm Springs project five years after launch was due to "redevelopment of the plots".
The decision sparking outrage from investors who threatened legal action after the developer offered compensation well below current market value.
Damac has since told investors said it will go ahead with the project, according to a statement on an investor group website.
The developer also changed its mind about the cancellation of its Haz Tower in Business Bay last week, after investors complained about its plans to pull the project.
The Real Estate Regulatory Agency (Rera) has said the problem has so far been limited to Damac.
"We have not received any other complaint from investors about developers buying back properties. But if we do, we will definitely investigate the issue,” Marwan bin Ghelaita, CEO of Rera, told Emirates Business.
Many analysts are talking about a looming crisis in the construction industry has the cost of raw materials, particularly cement and steel, continues to climb.
Construction costs rose at about twice the rate of inflation in 2007, up around 20% according to research from international consultancy EC Harris. The price of steel reinforcement rose by 46% and structural steel gained 38%, while cement prices ended the year 30% higher.
2 comments:
What about the spinning towers project from Highrise?
Had the prices of construction material and labour gone down would the construction companies have given the advantage to the investors? They would have boasted of making a huge profit.
The constructors are charging exhorbitant prices to investors already. A small villa costs 1.5 million in dubai. For 1.5million one can buy a small mansion in Canada.
The Government should adhere to strictor control especially when big constructors give the investors a run around. If laxaty is shown to big constructors the investors all over the world will loose faith in Dubai realestate market and it will come crashing down.
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