Weekly Dubai real estate news digest. Issue 51

Taking a stand against flipping
Welcome to the fifty-first issue of Market Insight, your weekly guide to what's happening in the Dubai real estate market.
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MARKET INSIGHT. Weekly guide to Dubai's property scene
Issue 51 |  June 22, 2014

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!


Pashma Manglani


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Dubai mulls more measures to control speculation

Considering a crackdown on property flipping, the Dubai government is weighing up the introduction of extra fees on off-plan sales and placing new restrictions on such sales, the government's media office tweeted recently.

The long-anticipated news follows an influential report by the IMF published this month that highlighted the issue of flipping - or buying off-plan homes then selling them before they are completed at a profit.

"Imposing additional fees and restrictions on reselling off-plan properties, as currently under consideration, would further discourage speculative demand," the IMF said in its report.

The practice of flipping was widely blamed for inflating property prices in Dubai before the global financial crisis.


Read more on The National

'Property booms good for UAE economy'

"Property booms lift economic activity and are good for personal wealth levels," said Ziad El Chaar, managing director of Damac Properties. "They generate income for the government and stimulate the multiplier effect for more investment in the property market."

His comments came after warnings from the UAE's Central Bank and from the IMF of the dangers of "overheating" in the UAE property market, which resulted in prices rising by nearly 28% last year, according to official figures.

Damac was one the developers that came through the property bust of 2009-10 and has re-entered a phase of high growth in its luxury end business. 

El Chaar warned of the dangers of excessive speculation in the property market and called for authorities to take new measures to combat it. "Speculation without fundamental demand would encourage developers to launch lots of new projects that would not be sustainable."


Read more on The National

Dubai top market in the world - again

Dubai remains the best performer and has topped the list of Global Property Guide's house price survey for the fifth consecutive quarter, with house prices rising 31.57% during the year to Q1 2014. 

In the first quarter, prices rose by 9.8%, said the UK-based research house covering residential market trends in 101 countries.

"Property demand is surging," the report said, stating Dubai Land Department's data that revealed transactions rose 11% during the year to Q1 2014, compared to the same period last year, while transaction values jumped 38% year-on-year to AED61 billion.


Read more on Emirates 24/7

Chinese investors spend AED1.3b on realty 

Off-plan sales for high-end properties in Dubai are very strong and have been boosted by international investors, primarily from China, says one expert.

"High-end off plan sales are strong in Dubai and this is being boosted largely by international investors and Chinese investors are playing a lead role here," said Tommy Trask, director, Corporate Ratings, Standard & Poor's, a global ratings agency.

About 1,000 Chinese investors spent AED1.3 billion on land, residential units and office real estate in Dubai in 2013, according to data from the Dubai Land Department.


Read more on Emirates 24/7

More developers asking for post-dated cheques 

With more off-plan launches emerging from the pipeline, some of Dubai's leading developers are insisting on taking post-dated cheques from buyers as cover against future payment defaults. More developers could follow suit with similar demands.

From a buyer's perspective, this would be another burden to bear, given that bounced cheques constitute a civil offense here. 

"Local developers have long memories from 2009-10 when they were left with a pile of unpaid amounts by buyers in their projects and with limited recourse to collecting owned money," said Sameer Lakhani, managing director, Global Capital Partners. "Now, they want to bring in sufficient safeguards right at the outset of the offset launches."


Read more on Gulf News

Realty outflow from ME could reach $180b 

Despite all of the off-plan launches and projects that have been happening in Dubai and elsewhere in the Gulf, Middle East investors parked a substantial $13 billion in overseas commercial property last year and nearly double of what it was in 2012. And over the next decade, they could pump in a staggering $180 billion overseas with Europe entrenched as the favoured destination, according to a report by global consultancy CBRE.

In fact, European commercial properties could absorb up to 80% of the projected Middle East buying spree with Asia-Pacific taking in 10%.


Read more on Gulf News

Arabtec's leadership change comes as surprise

Hasan Ismaik's exit as CEO of Arabtec has been quite a subdued affair.

A terse statement that he had handed in his resignation but that he will not go into any of the details as to what forced his hand was all the media could get from Ismaik. Mohammad Al Fahim will take over the role as acting CEO.

Arabtec has seen shares through a see-saw ride in recent weeks - soaring to AED9 a share plus and dropping to just over AED4 in a matter of days.


Read more on Gulf News

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