Rocketing land prices have doubled this year
Massive increase in price of development plots sends construction costs through the roof
The cost of development land in Dubai has soared by a massive 184% over the last year and a half.
And prices are set to go even higher according to a CB Richard Ellis (CBRE)/Construction Week real estate survey.
It means that developers will face rising construction costs and that could put further pressure on contractor margins.
The survey also found that the amount of open market land available for sale has declined by 53% since January 2004, measured on a month by month basis.
“With the current level of unsatisfied demand it is difficult to see, in the short-term, any scenario other than a continued increase in land prices,” said Damian Harrington, CBRE associate director.
He added: “However, the supply of completed real estate in the market will increase substantially from 2007 onwards, when sales and lettings take-up will determine whether current land pricing can be sustained.”
The survey was based on Dubai Lands Department data and analysed plot sales in all of the main Dubai sub-markets.
Over the last 21 months development land in Dubai has risen from US $91 to a massive $258 per square metre.
One of the key trends to have emerged from the survey is the fall in transactions, which began to materialise in March and April of this year.
It was around this same period that the residential real estate sales market (which has driven the Dubai real estate market to date) started to see a fall in buyer activity and interest.
The highest land prices have been recorded in the most established CBD locations, notably Trade Centre and Sheikh Zayed Road where individual plot sales have achieved $5389 per square metre on average, in the earlier part of the year.
“As new units are physically completed across Dubai and made available to the market, we suspect this will create a softening in residential prices in due course, eventually putting negative pressure on land prices.
“If we look at the actual volume of transactions, I think it highlights the most important trend — that deals being done are actually falling, both in terms of frequency and total volume,” said Harrington.
The soaring land prices have encouraged many developers such as Dubai Properties and Nakheel to hold plot auctions.
This week Dubai Properties sold 65 000 m2 of property at Business Bay for $272 million in less than four hours.
Nakheel also netted $44 million for 79 000 m2 of land at Jumeirah Golf Estates.