A market slowdown in Dubai

Dubai is one of the most international markets in the world as highlighted by the figures recently published by the Dubai Land Department. Dubai’s real estate sector has attracted approximately 13,278 investors so far this year, with transactions worth Dh35 billion. A staggering 133 different nationalities have bought property in Dubai since the beginning of the year. In terms of the value of investments, UAE nationals ranked highest while Indians topped the list among foreign investors.

“The diverse array of nationalities putting their money into Dubai’s property sector and the high value of the investments being made confirm the city’s attraction for real estate investment, especially when compared to other property markets in the region,” said Sultan Bin Butti Bin Mejren, Director General of the DLD.

Dubai is still a very young property market, but it is showing signs of developing into a more mature investment environment with a stronger infrastructure and a drive towards more transparent legislation. The DLD recently introduced a centralized electronic memorandum of understanding to standardise the process of selling property and minimise misrepresentation and misunderstanding.

This is very new and the contracts still need some revisions, but it is definitely a step in the right direction. Since the end of last year Knight Frank has revised its annual forecast for this year, forecasting a moderate growth in the prime market, having seen growth of 18-22 per cent year-on-year in the previous three years. In fact, real estate prices in Dubai had the second-highest rise globally last year, second only to Jakarta in Indonesia. This was on the back of a strong fourth quarter with the announcement of the World Expo 2020 in Dubai shining the spotlight back on the emirate.

There is also a move to make the market more sustainable because of concerns the growth in previous years had been too strong and too quick, leading to a potential crash. In light of this, a number of cooling measures were introduced.

Cooling measures
Doubling of the transfer fee from 2 per cent to 4 per cent: The doubling of the transfer fee has made property flipping less desirable, especially with the buyer shouldering the entire amount in many cases, in spite of the Real Estate Regulatory Agency’s directive that it should be split equally between buyer and seller.

When including the agent’s fee, buyers will have to pay a further 6 per cent on top of the agreed purchase price and potentially another 1 per cent in mortgage arrangement fees. There has also been speculation that the transfer fee will be increased further to 6 per cent, with the additional 2 per cent to be paid by the seller.

Mortgage caps: Mortgage caps (illustrated below) were announced in December and this resulted in a sharp decline in the number of transactions, as buyers now need a bigger amount for the deposit. This will have an impact in the short to medium term, while deposits are being amassed.

Property flipping being curtailed by some developers: Property flipping has been curtailed by some developers following an announcement by Bin Mejren, who said in January the emirate plans to create rules to control speculation on property sold before they are built. In response to this, Emaar, Dubai’s largest developer, has banned the resale of incomplete property before 40 per cent of the value is paid. It also has a preferential access scheme for investors, giving first pick of the best units if they sign an agreement preventing them from selling the unit until it is handed owner.

The affect these cooling measures have had in slowing down the market has been stronger than anticipated. Comparing transaction figures between the first quarter this year and last year, the decline in transaction volumes has been 28 per cent across villas and apartments, according to published reports. We see this as partly a result of the cooling measures, but also an effect of the Expo 2020 as seller and buyer expectations are not fully aligned, with some sellers increasing the value of their property above the market price and not allowing negotiations on the price.

In spite of the slowdown, the International Monetary Fund in a recent statement has urged Dubai to curb speculative demand further to avoid another bubble, citing markets such as Hong Kong and Singapore and their cooling tactics. The slowdown is a welcome development in the property market and it will help build confidence, as it shows the right steps are being taken to control the market.

Those looking to invest in Dubai are more concerned about the sustainability of the market and the possibility of another crash similar to the one in 2008. The measures that have been implemented are having the desired effect in this period of stabilisation, which is creating an opportunity for institutional and equity-rich investors to step into the market.


Source: Victoria Garrett, Special to Property Weekly
An Associate Partner—Residential UAE at Knight Frank, a privately owned global property agency and consultancy. She has been a keen observer of freehold property internationally and in Dubai for the past ten years.

Al Nisr Publishing accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the information provided.


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