Dubai property sector faces correction

Dubai property sector faces correction

In the wake of the ongoing global liquidity crunch, are the property prices in Dubai on the verge of a correction? Although the financial meltdown has affected markets worldwide, its impact on the UAE has been relatively less significant. Despite signals of a global recession, the UAE economy is expected to register a 2-3% growth in 2008, which is extremely good in the prevailing economic clime. As a result of its high GDP growth and development, Dubai has emerged as a vital business link between Europe and Asia attracting investors both from the West and the East. In 2007 alone, the Dubai International Airport handled a record 34,340,000 passengers, an 18.3% increase over the 2006 fiscal year. Visitor traffic in Dubai, this year has already increased drastically after Terminal 3 of Dubai International Airport became operational. The growth in the number of visitors is reflected in the regional real estate sector, as the need for quality housing rises.

According to our estimates, more than 120,000 units would be available in Dubai by 2008/ 09 as many residential projects are completed. But this is not sufficient to quell the rising demand. Consequently, we note a surge in the prices for residential properties across the emirate. Studies by Gowealthy Research Team reveal the price hikes are not uniform across Dubai. Some off-plan properties are on the market for exorbitantly high rates. The unrealistically high prices for off-plan properties can be attributed to both developers and speculators looking to exploit the supply-demand disparity prevailing in the market to make quick hefty returns. They are drawn to the market by the astounding gains made by early investors.

As the property sector in Dubai gains parity with the international markets, the Government of Dubai is implementing corrective measures to bring the malefactors to book.  The Laws No: 13 and 14, issued in August 2008 are steps in this direction. The Law No: 13 that regulates off-plan property purchases in Dubai, makes it mandatory to register off-plan property sales with the Land Department. Any sale or other disposition that transfers or restricts title shall be void if not registered in the Interim Real Estate Register. The Law No. 13 effectively makes the Real Estate Regulatory Authority of Dubai (RERA) the first point of registering property and land sales and this would hasten the process of Title Deed registration when the building is handed over.

RERA was formed under the affiliation of the Land Department in 2007 to unify and control all property market-related activities in Dubai.

Heightened monitoring by RERA is certain to have a stabilizing effect on the market, checking the astronomical growth in prices, as speculative buying and unfettered development decline. The Dubai real estate sector is still evolving and maturing and the recent legislations, in addition to the earlier Escrow, Strata and Condominium Laws instill much-need credibility and transparency, boosting investor confidence.

A recent study indicates that the number of properties listed for sale by the UAE's top brokers has jumped by more than 150 per cent in the past 5 months, ending in October.  Contrary to reports that the stabilizing prices and high number properties for sale indicate a nervous market, we have strong reason to believe that they are signs of a maturing sector, gradually establishing itself as an ideal platform for solid long-term investments. The extraordinarily high number of properties for sale during the last 5 months is actually a sign of speculators exiting the market, which in turn signals that the governmental measures are nearing fruition.

The liquidity crunch, that crushed the western realty markets, has had little effect on the UAE till date. Unlike the UK where the main problem is lack of finance, there is ready availability of funds in the UAE. Although the UAE government has floated an AED 70 billion (US$ 19 billion) safety-net for the region's banks, none of them have availed of the package which is ample proof of the economy's resilience.

Many gulf investors have withdrawn investments from the stock market and invested in real estate. The UAE Central Bank has already created an AED 50 billion reservoir from which developers can borrow to ensure that the mammoth real estate projects are completed on time. The Bank has also cut the interest rates in a bid to stimulate lending.

Worldwide, real estate is viewed as a lower risk investment providing stable gains. In Dubai, its importance is paramount when viewed in relation with the scale of the ongoing development. For the emirate to ascend to the status of established markets like New York and Tokyo, it is imperative that it has a sound legal structure with adequate controls and checks. The recent corrective measures indicate that the Government is serious about weeding out unscrupulous investors and developers, thereby making Dubai real estate a solid and trustworthy proposition.