To avoid real estate bubble, Dubai sets stage for more regulation
2013 is turning out to be a year of numerous firsts for Dubai. The Expo 2020 win created history, making Dubai the first city in the Middle East and North Africa region to host the largest trade show on earth.
Post win, we have seen a spate of regulations addressing fears of unaffordability of homes and rentals and a lurking bubble as Dubai enters a new phase of growing appetite for real estate. The market has clearly rebounded since the downturn with prices increasing by over 20 per cent this year even as new projects get launched every other week.
The latest measure by Emaar banning estate agents from reselling homes before completion is one of the many steps we’ve seen this year to tighten up on flipping. The developer, however, stated that real estate agents could purchase completed property, but only after the unit had been in the general inventory and unsold for a minimum of 14 days. In such a scenario, there would be no restriction on resale. This move to make off-plan property purchases not subject to transfer until handover also follows RERA’s doubling of the property transfer fee from two to four per cent according to an article in Khaleej Times.
In yet another decree announced last week, His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, ordered that anyone renting out residential property on a daily, weekly or monthly basis would be required to apply for a license from the Department of Tourism and Commerce Marketing, which will add two new classes of “standard” and “deluxe” holiday homes to its existing hotel classification framework and create a database of all such licensed establishments in the emirate. With Dubai gearing up for Expo 2020, more landlords are likely to short-let their properties given the huge visitor and tourist influx that the emirate will experience, so this decree to regulate the holiday home market has come at an appropriate time.
Additionally, short-term leasing fetches landlords much more revenue than traditional long-term annual contracts, so tightening laws in this area is essential. The anticipated 20 million visitors for Expo 2020 will also benefit from this regulation as they will be assured that any private apartment, townhouse or villa they rent will be of a certain standard with appropriate insurances and managed by a qualified party.
When Dubai first granted foreigners the right to buy freehold property in 2002, the Dubai Real Estate Regulatory Authority did not even exist. As the city prepares to host the world’s third largest non-commercial event, market regulation has taken center stage. This in itself is a sign of progress and proof that the market has learnt from the dizzying highs of 2007 and most importantly, from the grinding lows in 2008-2009.
In a recent speech about why Dubai should win the Expo, David Cameron, the Prime Minister of the United Kingdom, spoke about how when the Crystal Palace was unveiled in Hyde Park in London during the world’s first Great Exhibition in 1851, observers looked at the glass glittering in the sun and thought it resembled something out of the Arabian Nights. It’s taken over a century for the world exhibition to come to the Middle East, but the time has come nevertheless.
In the years leading up to the Expo, there are going to be different laws and regulations coming in from RERA to make the property market more robust. A sustainable market can only emerge over time, it doesn’t happen overnight. For instance, during the boom time, very few transactions were for own use whereas five years later, the fundamentals are different with people buying property for themselves.
The Expo 2020 is a great incentive to set right the deficiencies in the real estate ecosystem. What we need then is not a big boom, but just good steady growth.