“Distress Deals” sounds like Magical words to the ears but let’s understand what it is and how it works. A distress deal is a deal for any property where you’re getting the unit below the market price of that unit not necessarily below the Original Price of that unit.
Many claims that they have distress deals with them, however, are they for real? Let’s dig deeper and find out the truth.
There are 2 major types of distress deals in the market-
Real Distress Deal: All those deals where you’re getting the unit below the actual MARKET PRICE, and we can only call those deals a distress deal even if they are more than Original Price but the point to note is that they should be below the Market Price.
Example: Seller-A has bought a townhouse in Nshama Townsquare at AED1.35, the current price of a similar unit in the market is AED1.8M, but the seller has some urgent need of funds and he’s willing to sell at AED1.5M. Now, this is a real distress deal, though the seller is making a profit out of the sale. But he is selling the unit below the MARKET PRICE, hence, we consider this as a real distress deal
Not So Real Distress Deal: These are the deals where the broker/owner is offering a unit below the PURCHASE or ORIGINAL PRICE and hence claiming it to be a Distress Deal however the fact could be they are trying to offer the unit above the Market Price.
Example: Seller-A bought a one-bed apartment in JLT for AED1.25M in 2014(Last market peak) and offering his unit at AED800k now and calling it a distress deal as he is selling almost 35% below the Purchase or the Original Price; however the point to evaluate here is that what is the Market Price of a similar unit. If the Market Price of the similar units is even 775K or even 800K, then for sure, this is not a distress deal.
So, the Point to be noted here is, to evaluate whether a deal is a Distress or not, Market Price should always be taken into consideration and not the Purchase or the Original Price.
When do Real Distress Deals come into the market?
Honestly speaking Distress deals can come up anytime however it is seen that during a recession or during an event like a pandemic, many people lose jobs, or their businesses get unstable, in those scenarios people get anxious and look for an exit and sell their properties at a considerably a low price point. In such scenarios, real distress deals come into the market.
However, if we look at the current market which is bullish by all means, distress deals are not coming into the market as the sellers are not looking for an exit, instead, they are holding onto their investments to get a better price in the future.
The only exception in today’s market is dead areas or areas with minimal scope to appreciation like Majan, DIC, DLRC, Liwan, etc., where there is no demand coming in, in such areas one may still get a real distress deal.
How to get a real distress deal?
In today’s market, getting a real distress deal is as good as winning a lottery ticket. First of all, any real distress deal comes to a broker first, then either the broker himself buys and flips the unit at market price or involves an investor to facilitate the transaction and takes part of the profit, by no means the broker will offer the deal to an end-user and ruin his chance to make a sizable profit for mere 2% Commission. So, for an end-user, it is next to impossible to stumble upon a real distress deal in today’s market.
Conclusion: If you’re an end user, then look for areas that have good potential for growth, research and find a good developer within that area, and then try to find out a reasonable deal in the building or community. Always try to take the help of an area expert to do the groundwork for you and secure the best possible unit available in the market, finally when everything is ready, do not try to over-negotiate as during the current market conditions, chances of losing the opportunity altogether are higher than getting the discount.
We believe that we have covered all angles related to distress deals in the Dubai Real Estate market. Let us know in the comments your views or your experience about the distress deals in Dubai or in case you want us to add or cover anything else.