Alan Akerman * had been putting the final touches to his plans for New Year’s Eve in Dubai. With his wife and six friends, they would head to the Burj Khalifa early in the afternoon on December 31st, in the hope of claiming a prime spot for what was being billed as the greatest fireworks display in history, to take place on the stroke of midnight.
Akerman never made it to the Burj Khalifa, but had his fair share of fireworks hours earlier. “I heard rumours about 10am, and then saw it on various websites. To be honest, I was in a state of shock, trying to work out what this will mean for us, not just today, but for many years to come.”
Akerman, like thousands of other expats in the emirate, had recently been finalising the purchase of his dream home in Dubai, a three-bedroom apartment in Dubai Marina for $630,000. With his wife, he had spent the last few years saving the 20 percent deposit required, with his bank agreeing to mortgage the rest.
But a UAE Central Bank circular issued on 30 December changed all that, capping mortgages for expatriates to 50 percent of the value of the property for the first home and to 40 percent for the second.
“For us the equation is simple. I now need to find $315,000 to buy my house, rather than $126,000. I don’t have that kind of money. I never will. The deal is off,” he says.
Deal off for Akerman, but it may still be game on for the real estate sector. Long term, the destructive property cycle of boom and bust may have finally been quashed. With fewer buyers on the market, the rental sector is set to benefit, and investors may also focus on lower priced properties, giving that sector a much needed boost. And if the central bank has been modelling its decision on similar moves in Hong Kong and Lebanon, then it could signal a historic turning point in the real estate industry — for the better.
The roots of the decision lie, of course, in Dubai’s astonishing white-knuckle ride in the final years of the last decade. After a law was passed in 2002 that allowed foreigners to own property in certain areas of the city, investors and end-users entered the market in earnest, buying up large tracts of what was — at the time — cheap housing.
Between 2006 and 2008, the property market soared. As government money poured into ever more grandiose projects, queues building up outside developer sales offices became a common sight. Flippers — the short-term investors who bought up off-plan properties and sold them on for as much as 20 percent profit in a matter of hours — made millions of dirhams on properties that only existed on an architect’s drawing board.
Article continued on next page