A surge of interest in new property developments in Dubai has almost inevitably prompted concerns with respect to the sustainability of the sector’s recovery, recalling the bubble in 2008. However, most old hands in the industry believe investors, regulators and developers have all learned some important lessons from the crash in the sector five years ago, and that the heightened activity signals a the continuance of a rebound that began around a year ago.
In recent months, there has been a rise in the number of off-plan developments, with investors buying into projects well before construction work has commenced, or buying existing properties and then looking to sell as prices increase, Reuters reported in late February. However, the market has yet to reach the level of activity it witnessed before 2008, when sales all but dried up and values began a 50% plunge that did not bottom out until 2011, and then only in certain areas.
Real estate sales in January 2013 were up by 19% year-on-year and there has been rising interest in prime locations, which has pushed up prices in many areas. Meanwhile, expectations of continued economic growth in a number of traditional growth sectors, including tourism, retail, aviation and trade, have also spurred interest in property, according to a report by real estate agency Hamptons. Overall, the report said that prospects were positive for price growth in 2013.
According to Ahmad Thani Al Matrooshi, chairman of the Dubai Property Society, the emirate received a sizeable amount of bad press over the impact of the crisis on its real estate sector, somewhat unfairly, but the external perception is turning around.
“What helped was the realisation that this issue was not unique to Dubai, but on a global scale,” he told OBG. “What really brought Dubai into the spotlight was the fact that it was in a pure development stage, while other nations – both neighbouring and worldwide – had less development. It was particularly bad timing for Dubai.”
While the market has improved, some in the industry believe the sector needs to be strengthened via improved accountability. For example, Steven Morgan, head of Cluttons UAE, said more needs to be done to boost transparency, a measure that would improve standards and the industry’s reputation. “Transparency is a tricky issue here in Dubai, particularly due to the poor availability of reliable data,” Morgan said in a recent interview with OBG. “This problem is exacerbated by the fact that information is king, and thus statistics are rarely shared.”
To this end, Dubai’s Real Estate Regulatory Authority now provides online information on property projects and developers, giving the public access to up-to-date information. There have also been suggestions that the sector would benefit from some form of restriction on how quickly an investor can sell or flip newly acquired property as a measure to take some of the heat out of the market should the need arise.
Another measure that is still under discussion is the plan to limit the level of funds banks can lend to buyers purchasing their first properties (i.e. those not buying a second or vacation home). The Central Bank of the UAE and local commercial lenders continue to disagree over the reserve’s plans to cap loans at mortgage-to-value levels of 70% for locals and 50% for expatriates, while the Emirates Banks Association has countered with a proposal for upper limits of 80% and 75%, respectively.
The central bank has said it will finalise regulations governing the proposed cap in the second half of 2013, allowing for a more extensive consultation process with the banking sector.
Despite whichever limit is adopted – or if a compromise figure is reached – the issue will have little impact on sales as mortgages now account for only around 30% of total property transactions, Bloomberg reported in March, which is actually lower than the 49% in 2007, before the downturn in the property sector.