Bank issues warning on 'destabilising' property speculators

QUICK GAINS: Standard Chartered says short-term speculators looking to are damaging Dubai's property market. (Getty Images)

The Dubai government should take action immediately to stop rampant speculative activity across the emirates’ property market, Standard Chartered warned on Thursday.

Speaking on the sidelines of a press conference, Marios Maratheftis, regional head of research at Standard Chartered, told Arabian Business the government must act “as soon as possible” to rid the real estate market of destabilising short-term buyers.

According to Colliers International, property prices in Dubai rose 42 percent in the first three months of 2008, well beyond Standard Chartered’s forecast of 15 percent for the entire year.

The bank's research revealed prices were being inflated by short-term buyers who were on-selling their properties, even before their first installments were due, with the sole intention of making a quick profit.

Maratheftis said the situation was so urgent, the government should impose a capital-gains tax of at least 50 percent on profits from properties purchased and sold within a 12 month period.

Buyers who held onto their property for longer should be exempt, he added.

Real estate developers should also require a higher deposit figure than the standard 10 percent for a property, such as 20 percent of the property’s value. Buyers should be also be forced to provide proof they can afford the remaining payments.

Off-plan properties are currently suffering from the most speculation, with the cost of these properties often the same as for completed units, Maratheftis said.

Property prices in Dubai have soared since foreigners were given the right to own real estate in limited areas in 2002, with demand surging past supply on rapid population growth.

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USER COMMENTS (13 COMMENTS)

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Too Little, Too Late
Posted by Trojan on 4 August 2008 at 16:00 UAE time


For those guys who think taxes are such as stupid idea, then you must be geniuses and the rest world needs to learn from you. WAKE UP FROM YOUR LALA LAND DREAMS! Capital gains are a fact of life and they are needed. Unfortunately, such a solution is too late at this stage.

What the banker who issued the recommendation failed to take into account is the conflict of interest that distorts the market. The regulator, the land owner, and the developer are one and the same. It is like having the judge, the jury and the executioner all in one person - justice will never be served. These recommendations and other badly-needed reforms in the region will never be implemented until the Middle East catches up to one of the tenets of a properly-functioning free market: GOVERNMENT SHOULD NEVER BE IN BUSINESS FOR PROFIT

Bank Issues Warning...
Posted by Sanjay, Dubai, UAE on 29 July 2008 at 22:53 UAE time

Instead of coming up with such brilliant proposals 6 years into the boom, he should spend time researching why the BUYERS who buy property on bank loans are suffering due to delay caused by unprofessional approach of the bankers / mortgage depts within banks and rectify that to make life better for at least some people. For those who have tried the mortgage depts at the "leading" financial institutions will agree that it is by the MOST frustrating experience one can face and there is NO accountability accepted by the mortgage managers who get away by simply passing the blame. Please research my friend!

Great opportunity!
Posted by Imz on 29 July 2008 at 13:22 UAE time

I think Mr Marios Maratheftis has a lot of time on his hand since its summer and the property market is slow, otherwise instead of giving such a senseless article, he would busy buying and selling properties and making quick bucks like everyone else.
Let the free markets takes its course rather then imposing investors with 50% tax!
Its a great opportunity guys to invest and make good money and secure your future till the time lasts. That's what most of the current rich people in other parts of the world did at the time of their property boom.
And besides the association of "tax" with Dubai is going to be a huge blow to the market and to the country. Things work differently in this part of the world..let it be.

Speculators
Posted by Jack, Dubai on 27 July 2008 at 18:55 UAE time


I thought that was the general strategy of 'new market' property speculation, get in and get out before it gets 'normal', which is when the 'price adjustments' begin to kick in. If you bought five years ago you're laughing, buy now and it is unlikely you'll get anywhere near the same return. As for the second hand market, this will struggle to establish it's self all the time there are new off plan developments coming on line.

Property Market
Posted by Obelix, Dubai, UAE on 27 July 2008 at 17:36 UAE time


There is only one word to describe the property market - GREED.

propertyspeculation
Posted by paresh, dubai, dubai on 27 July 2008 at 11:50 UAE time

I own a consultancy which advices, evaluates projects and i know for a fact that RERA are going to release a new law requiring a minimum of 25% to be paid before anyone can resale on secondary market.
Although this does not go all the way, it does bring some hope and will at least rein in speculative forces.

SHOW ALL COMMENTS

Bank issues warning on 'destabilising' property speculators
Posted by Aneil on 26 July 2008 at 11:40 UAE time

I agree with Mr. Maratheftis. The Dubai govt. needs to impose some regulation upon investors looking to make quick money, whether it is taxes or restricting resale for at least until the construction is complete. You have genuine buyers/end- users unable to buy because most of these properties are snapped up by potential investors within hours of being launched and shortly become available on the secondary market for a significant premium.

The developers are equally at fault as they look to rid their own liabilities; notwithstanding the fact that they are quite aware that a majority of those units have been reserved by people that have no intention of living in them.

The regulators surely need to differentiate between end-users who live here and incur huge mortgage liabilities over several years versus investors, who put down very little, commit short-term and walk away with huge returns on their extremely modest investments. Many of them are non-residents, so don’t spend much locally and repatriate all of that income free of charge, not to mention drive up the property prices to absurd levels.

Property Market
Posted by Sam on 25 July 2008 at 16:09 UAE time


Regardless of how irregular the situation is, how can a bank researcher come up with such an amateurish solution to this problem. 50% Taxes in the land which biggest attraction is that it's tax free? Government regulation and stifling of speculation that was the heart of why the market boomed in the first place?! The failure of this concept has been proven over and over again, it doesn't work. The market has already been oversold 10 times over, there is no protection from the backlash of inflation, greed, and inevitable illiquidity and eventually the correction.

property
Posted by matthewwuillemin on 25 July 2008 at 03:41 UAE time

Let free market forces work and eventually when the end users get burnt the prices will reflect true value. The easy solution is to only do what happens in the real world - that is - you pay you tem percent or what ever deposit and even of you sell the property before completion, no title can be changed until settlement ie completion. you can still sell for a higher price but no one gets the premium until the developer hands it over.. that stops the problem of the premium being paid before there is a physical entity and protects all parties.. but unlikely to get thru the system as the local are the ones making lots of money out of this so... end result... caveat emptor!!

property speculation
Posted by paresh, dubai, dubai on 24 July 2008 at 20:37 UAE time


The property market is inundated by speculative forces and does require specific laws which restrict buyers from making profits unless they have actually made a number of instalments or perhaps to be able to resale only after a year.
This would bring stability to the market and form a solid basis for the property sector.

..this is highly unIslamic..in an Islamic country..
Posted by Kaptain, Amman, UAE on 24 July 2008 at 15:15 UAE time


..the Islamic law stipulates that commodity should have a physical presence before it can be traded..
spot trading / trading before it materializes is highly against the those sections of the population who bear the brunt when that 'unfinished' good has exchanged many hands..

naming a baby before it is born..sound illogical..

so how is this justified..??

Taxing inflation?
Posted by Hassan, Dubai, United Arab Emirates on 24 July 2008 at 13:33 UAE time

Adding to the highly leveraged speculation is the fact that commodity prices and transportation costs have skyrocketed, prompting the developers to constantly increase launching prices in each phase of the multi year developments.
This is also aggravated by adverse currencies fluctuations.
Inposing a tax on inflation is unwarranted.

Re. Property market!
Posted by SR, Dubai on 24 July 2008 at 13:20 UAE time


I personally can not understand how can there be a value for a property that is incomplete. Seriously, I also can not understand the financial logic of people who invest their money on such "second hand" incomplete properties!!!
I think they should have some regulation where the purchasers can not sell off-plan properties before completion / may be till one-year after completion. Otherwise, real estate agents will continue to inflate values of properties in an unrealistic manner.
My guess is that there are only a few genuine buyers (actual end users) for most off-plan properties, majority are in it for a "quick buck", which is alarming. Just think about it there may be a point where everybody who wants to sell-off their properties but nobody to buy (because there are no wind-fall capital gains anymore).

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