Dubai bubble threat is for real

Jun 16 2014, 00:50 IST
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SummaryProperty prices in the city moving towards unsustainable levels on back of economic boom

Propsquare Real Estate said sales volumes so far this year were down about 25% year-on-year as prices become less affordable.

“The gap between what the seller is asking for a property and what the buyer is willing to pay is huge at the moment,” said Parvees Gafur, Propsquare's chief executive.

Yet the Land Department described the first-quarter surge in real estate deals as “impressive” and looked forward to more.

“We expect the next three quarters to be similarly active, especially as this period follows the launch of a number of stimulating economic projects in Dubai and the disclosure of some of the preparations for the city’s hosting of Expo 2020,” said the department's director general Sultan Butti Bin Merjen.

The government fuelled the current property boom when it announced plans, in November 2012, for a huge development including the world’s largest shopping mall, over 100 hotels and a park almost a third larger than London’s Hyde Park.

Meanwhile, most of the more than 200 man-made islands off Dubai laid out in the shape of a world map that symbolised the 2008 property market crash remain empty after state-owned developer Nakheel's near debt default in 2009.

Authorities have taken some steps against price speculation and “flipping”, in which investors buy and sell properties - many of them unbuilt - in quick succession. Late last year, Dubai doubled the fee charged on property deals to 4%, while the UAE central bank imposed caps on mortgage lending.

Some real estate developers have taken their own action; partly state-owned Emaar Properties allows resale only after about 40% of payment for a property has been made.

But these steps are minor compared, for example, to a 15% fee imposed on the quick resale of property by Hong Kong and a 30% fee introduced by Singapore. Last month, the International Monetary Fund warned that Dubai might need to consider such tools as well.

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