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
It is not clear that supply and demand are getting far out of line. Analysts expect about 15,000 to 18,000 residential units to enter Dubai’s market this year and the same number in 2014 – although these numbers may rise as scores of projects, shelved during the crash, are revived.
On the demand side, the population of Dubai, now about 2 million, has been growing at annual rates of around 5 percent or more, meaning an addition of about 100,000 people every year, according to official data. Such growth seems able to absorb the projected increase in supply.
Also, Dubai currently does not look expensive compared to other international cities. Prime residential space in Dubai now costs around $1,000 per square foot, compared to twice that amount or more in London.
Other aspects of the property market’s recovery are more troubling, however. One major, unresolved question is whether authorities are willing and able to regulate the market to prevent the excessive volatility of the past.
Dubai is certainly monitoring the market more closely now than it did before the crash. The Real Estate Regulatory Authority’s website provides updates on the progress of projects and the performance history of developers, and a system to hear complaints from investors and tenants has been introduced.
But an initial attempt by the United Arab Emirates central bank to curb speculative buying of properties has foundered. In December it introduced caps on mortgage loans as a proportion of the value of properties being bought; three weeks later, after commercial banks complained, it said it would not enforce those rules.
The central bank now says it plans to introduce wide-ranging rules for the mortgage market in six to nine months, after consulting the banks. The banks, which are politically influential, have proposed softer caps than the central bank’s original intention.
As few as 15 percent of Dubai’s home purchases are estimated to involve mortgages, so some analysts question how effective mortgage caps would be in heading off speculators.
Another concern is the effect of government statements in fuelling the bullish mood in the property market.
Prices have taken off in the last several months after the government and state-linked firms announced plans to build a series of spectacular projects, including a development featuring the world’s largest shopping mall and 100 hotels, a $1.6 billion island project housing the world’s largest Ferris wheel, and a $2.7 billion complex of five theme parks.
The statements buoyed the confidence of investors, but details have not been released, and in the past decade, Dubai announced many plans that were later quietly shelved. If the current plans do not materialise, demand for residential property could turn out to be less than hoped.
An official at a top construction firm in Dubai, speaking on condition of anonymity because of the commercial sensitivity of his remarks, said concrete construction plans had not yet been made for any of the recently announced projects.
“It will be a while before all this translates into work for us or anything starts, if at all,” he said.
Volpi said the recent announcements might be linked to Dubai’s active efforts to promote its bid to host the World Expo 2020, an event which could draw an estimated 25 million visitors. A decision on which country will host the fair is expected this year.
“If we get it (the Expo), we have seven years to build all that. If we don’t, none of it will ever get built,” Volpi said.
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