Will Dubai learn from its mistakes in real estate this time around?
The Dubai Real Estate Regulatory Authority did not even exist when the city first granted foreigners the right to buy 10 years ago. Indeed, RERA was only founded in the summer of 2007 when the real estate boom was at its height and a year from crashing.
Until then the early years of the Dubai real estate scene were dominated by a wild cowboy capitalism. Any developer from anywhere could roll up in town, stake out a piece of land and launch a project by selling off-plan to often foolish buyers.
An open house
This open season for real estate developers attracted some very dodgy operators who had no intention of building anything as well as a large number who actually ended up building some amazing buildings, well certainly very tall ones anyway.
Unfortunately the whole market got carried away into a massive speculative bubble. So when it came the real estate bust was also of historic proportions. China will probably be next and do it better.
However, Dubai real estate has also managed a very impressive turnaround from the 60 per cent slump in house prices of 2009. Over the past 12 months its rents have been rising by the most in the world and house prices increases are second only to China. House prices are close to the previous boom levels.
The formerly bankrupt state developer Nakheel, whose $25 billion financial restructuring was signed off two years ago this month, is really back in business, making profits and selling property left, right and centre.
Emaar Properties, always a much better managed company, is selling towers in Downtown Dubai off-plan again with buyers queuing down the road. And apparently a large number of private developers have applied to RERA to restart abandoned projects.
We certainly know of developers who have been released from the local prison after serving time for alleged check fraud who have gone straight back into the business. Are these guys really the the sort of businessmen who should be allowed to stay in town, let alone operate businesses?
Nonetheless, RERA is still in a position to control the evolution of the real estate market this time around. The mistake of allowing too many projects to go ahead at the same time should be avoided. If nothing else local credit conditions are tighter because the banks lost too much last time and are not as easily impressed by developers with no record, or the sort of record that ought to count against them.
Still it is really up to real estate buyers to do their due diligence before handing over large amounts of money to these developers. Always ask: who is this person or company anyhow? What is their track record? Have they built anything before? Do I feel comfortable with these guys holding my money?
To date only around 3,500 units have been sold off plan in Dubai since the real estate crash of 2009. In the last year of the boom it would have been 20 times as many. Things do seem to be different this time.
There is more regulation and central control and less speculative money available from the banks. Long may it continue!
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