Property speculators back in Dubai
Dubai is certainly monitoring the market more closely now than it did before the crash.
February 28, 2013 8:57 by Reuters
Property speculators are back in Dubai, aiming to make their fortunes by buying apartments and villas for cash, then selling them within months, weeks or even days. It’s a sign, some people fear, that Dubai risks repeating the mistakes of the past.
Queues of investors have formed outside the offices of major real estate developers in the past several months, in scenes that recall the emirate’s boom days before 2008, when money poured into Dubai property from around the world.
That boom was followed by a devastating crash when the bubble burst; inflated residential property prices plunged by more than 50 percent between 2008 and 2011. Dubai was forced to obtain a $10 billion bailout from neighbouring Abu Dhabi.
This time around, there are reasons to think that any property bubble will not be as large as the last one; supply and demand have not diverged as much, and government officials have said they will regulate the mortgage industry.
But given Dubai’s history, renewed signs of exuberance in the property market are grounds for concern. Mario Volpi, head of residential sales and leasing at property consultancy Cluttons in Dubai, warns that an unsustainable bubble could form unless the government steps in.
“Many investors who are queuing up for these properties are looking to make a quick buck by flipping them,” he said. “We need a rule that perhaps stops selling of property for two years after purchase. Or perhaps some sort of a tax on such sales.”
Although there a big variations within Dubai’s housing market, and many low-end properties are still weak, prices generally hit bottom around the middle of last year. Since then they have recovered impressively, rising as much as 20 percent in prime areas.
Some investors among the roughly 100 lining up earlier this month at the downtown headquarters of Emaar Properties , the emirate’s biggest developer, were veterans of the last boom.
“There is the same excitement in the air…People are buying anything that’s being offered by Emaar,” said one Pakistani investor, who did not wish to be identified because he did not want to draw attention to his operations.
The investors were seeking to buy “off-plan” properties – projects which had been designed but not yet built, and which might be sold on to another owner before construction. And, like the old days, many or most purchases appeared to be in cash.
“No one standing here is buying on mortgage. This is a cash buy business,” the investor said.
Ryan Mahoney, chief executive at property brokerage firm Better Homes, said: “In case things get too overheated, I do hope the regulators step in.”
Individual Dubai property agents handled as many as 30 separate projects at a time during the boom between 2006 and 2008, he said.
“Now we handle about two to three and they have not been launched. So, it’s still nothing like the days back in 2008, but there is definitely increased speculation in the market.”
There are some good reasons for the market’s recovery. Thanks to a burgeoning tourism sector and its status as a business hub for surrounding regions, Dubai’s economy is now recovering strongly, growing at a rate of roughly 4 percent. Political unrest elsewhere in the Middle East is prompting some people to use Dubai as a safe haven for their wealth.
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