Taking a stand against flipping
Property flipping - or the buying and selling of real estate to make a quick profit - has largely been blamed as the cause of the market crashing in 2008.
Earlier in May, the International Monetary Fund urged Dubai to put in place stronger measures to counter property speculation. Shortly after, the UAE Central Bank warned that low residential yields in Dubai and Abu Dhabi could be indicating overheating in the real estate sector.
Now, the government has announced its thoughts on introducing more measures to curb speculation. In a recent tweet, the government's media office said it was weighing the introduction of extra fees on off-plan sales and placing new restrictions on such sales. If it goes ahead, the move would be the latest in a series of measures brought in by the Dubai Land Department over the past year to calm the emirate's spiralling property prices.
Damac chief Ziad El Chaar recently commented that speculation without demand is not sustainable. "We, like some other developers want a 20% deposit plus 4% for the transaction fee, another 20% over six months and then the balance with the last payment on construction, though this varies on villas and apartments. But no speculator would pay 40% in the first six months, the sums just would not add to profit up for them."
He called for a government levy on "flipping" and asked authorities to encourage a new class of mortgaged resident property owners in the Emirates. "The loan-to-value rate for off plan is 50% compared to 25% for a ready to move property, and that is not good. The banks should reduce the loan-to-value rate but include a 'flippers' penalty charge or early repayment fee to prevent speculators using a mortgage to gain the finance to move a property on quickly."
However, other experts note that while it's a definite push in the right direction, instituting these changes won't be as easy. "We welcome the news that the government is looking to do something about this," said Craig Plumb, head of research at JLL's Dubai office. "However, the devil will be in the detail. I'm sure it would be possible to do something like this, but at the moment, I'm not entirely sure how it would do it."
Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. As predicted last week, we will be hearing more about new measures to counter speculation in Dubai as there is definitely greater awareness of the problem sector-wide. The emirate continues to outperform other major cities and house prices have risen 31.57% during the year to Q1 2014. Demand appears to still be on the rise and is fuelling new developments. With all that is happening, it's bound to be a year of many exciting changes in the real estate market and be sure to follow the journey with us!