The authorities are looking into ways to stem rampant speculation, fearing an overheated market may lead to a collapse. Some analysts are predicting a flood of housing units to hit the market in a couple of years, especially in Dubai, finally tipping balance in supply and demand.

Industry observers, while expressing confidence that the Dubai government would not allow the real estate market to go bust, agreed that a correction in the next couple of years would indeed be healthy.

"There will of course be stabilisation and slowdown in terms of the high returns seen in a very short period as the UAE market has now entered a mature stage," said Usama Kalyar, the chief operating officer of Goldcrest Properties in Dubai.

Kalyar was responding to a research report issued last week by Morgan Stanley saying supply of new housing units would surpass demand by 2009 and result in price declines by 2010. The US investment bank said that the prices could fall by as little as 10 per cent, but there was a low probability of Dubai following the pattern of Singapore in the late 1990s when property prices plunged 80 per cent.

"I believe this is a healthy sign considering that market correction is a global phenomenon - what goes up has to come down. Overall, a 10-per cent decline is a happy situation," said Samir Patni, the general manager of Aber Real Estate. Dubai kicked off the region's real estate boom in 2002 by granting foreigners ownership rights. In the first half of 2008, Dubai property prices rose by 25 per cent, mostly fuelled by a growing expatriate population, speculative investments and construction costs, escalating by as much as 50 per cent in 2008 first half alone.

The chairman of JCA Real Estate, a UAE-based property broker, said a glut in the Dubai property market was unlikely as demand for new homes would soon catch up.

"Dubai is known for innovation and taking radical steps which its neighbouring emirates and countries can't even dream of," he said. "I think by the time supply comes on board, Dubai would have created more demand."

Dubai's rapid population growth of 110,000 per year is the main contributor to record-high prices of residential property, which according to Al Mal Capital jumped an annual 41 per cent in June, from 40 per cent in May.

Dubai's Real Estate Regulatory Agency (RERA)Real Estate Regulatory Agency (RERA), the emirate's top real-estate watchdog, said last Thursday that it was looking for measures to control the resale of newly built units in some properties to help ward off speculative or short-term investors but said no to a proposed capital gains tax.

In a recent report Standard and Chartered Bank argued for the government implementation of capital gains tax on properties being bought and sold within 12 months and regulate the payment plan as there are signs that the real estate market is overheating.

It suggested a tax of between 50 per cent and 100 per cent, adding that buyers must shell out a down payment of 20 per cent of the property price instead of 10 per cent.

Christina Cabading, the president of BSEL Infrastructure Realty FZE, said the property prices in Dubai would not necessarily affect those in Ajman, which is now experiencing 50-60 per cent year-on-year rise in the value of real estate.

By Jose Franco

© Khaleej Times 2008

 

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