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Sat, 04 Jul 2009 | 03:17 GMT

UAE shows the door to real estate speculators

Emirates Business 24/7
 
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11 November 2008
The UAE has successfully squeezed speculators out of its real estate market - but the results have not been as beneficial as some expected.

The imposition of curbs on the resale of properties has been counter-productive, says Varun Sood, CEO, Home Finance, Tamweel.

"The imposition of these new laws is causing a slowdown in terms of the attractiveness of off-plan sales," he told the GCC Home Finance Summit in Dubai yesterday.

"It's going down because of this."

Sundar Parthasarathy, Senior Vice-President and Head of Retail Assets at Abu Dhabi Commercial Bank (ADCB)Abu Dhabi Commercial Bank (ADCB)Loading..., said currently no one was interested in off-plan properties.

"It used to be that people would pay for tokens to be in a queue to pay five per cent deposits. But now no one is talking about off-plan properties at all. A client is not going to even look at it."

Until recently many investors booked properties by paying just five per cent of the asking price and later sold the units for large margins. The margin sometimes amounted to a three-digit rate of return as the investor was able to leverage his investment enormously.

But this sort of flipping was said to be damaging the reputation of the property market in the UAE.

Today some developers are restricting resales by insisting that a certain percentage of the property price must be paid before a property can be sold to a third party. This percentage varies from developer to developer and can be as high as 40 percent. Others have introduced a minimum holding period before investors can re-sell the property.

For example in its recent report on the UAE property market Merrill Lynch said Trump Towers required buyers to hold properties for at least one year before selling them on.

"In the past two to three years we have been funding speculators to buy four or five properties within three months, but that is not the case now," added Parthasarathy. "Ninety per cent of speculators have been removed from the market.

"The UAE market is now dealing only with genuine end-users. This is what the government always wanted but the problem is that these genuine buyers are facing difficulties in getting access to funds.

"What happens today is that you have a genuine end-user who wants to buy a property but they are not getting that finance. They can only get a mortgage for a maximum of 75 per cent of the sale price and the remaining 25 per cent has to come from their pockets, and this is causing a lot of pressure. Limited and high-cost financing have caused a contraction in demand and supply," he said.

He said 80 per cent of consumers were obtaining pre-approved mortgages, which meant only 20 per cent seriously intended to buy a specific property immediately.

"End-users are adapting a wait and watch strategy," he said. "They apply for pre-approved loans because they fear that the banks will further curtail their loans."

ADCBADCBLoading... has revised its mortgage rates from around 7.5 per cent to 9.5 per cent and has also lowered its loan to value (LTV) ratio to 70 per cent from about 90 per cent. Parthasarathy said the bank could provide 85 per cent funding provided that the client was from a reputable company and had a salary of Dh35,000 or above that was transferred to the bank.

But the two experts said it was not a gloom and doom scenario.

"There is still hope," said Parthasarathy.

"Abu Dhabi continues to suffer from a shortage of residential units that is expected to continue until 2011."

He said the UAE's capital was expected to increase its population to 1.4 million in 2015 from the current 930,000.

The continued economic growth and the emirate's efforts to promote itself as a tourist destination will encourage more expatriates to flock to the country. In addition actual supply has always been low compared with all the projects that were announced.

Sood added: "If you look at the number over three to four years, there has always been a lag on the supply side. Our estimate is that in Dubai there is a supply lag of about 21,000 units and we also expect that most of the supply have been pushed back to 2010 and 2011. And it could be even more than that."

By Karen Remo-Listama

© Emirates Business 24/7 2008

 
 
 
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