Can Dubai learn from the Hong Kong property boom?

Hong Kong’s housing market currently faces the sort of problems that Dubai did back in 2006-8

Do you know what the hottest property ticket in Hong Kong is right now? That’s right — it’s the humble parking space. The average price for each slot is now nearly $100,000, and a report last week claimed that one real estate boss, Jacinto Tong, had been offered $640,000 for each of his two spaces in the central Wanchai business district. Tong decided not to cash in; he says he likes parking his Mercedes S500 near his office building’s lift, while the other space is reserved for his driver.

Parking spaces have become big business; some banks are even offering mortgages on them. The average price has risen by 20 percent since the beginning of last year, while the number of transactions has increased by a whopping 400 percent. Some slots are becoming even more expensive than the city’s smallest homes.

But why all the interest in parking? The main reason is the recent steps local officials have taken in order to cool down Hong Kong’s extraordinary housing boom. Strict regulations imposed on those wanting to tap into a market that has seen prices rocket by 240 percent over the last decade have left investors scratching around for other areas in which to make quick returns. Parking spaces — which aren’t nearly as tightly regulated as houses — neatly fit that niche.

Hong Kong’s housing market currently faces the sort of problems that Dubai did back in 2006-8, and it’s therefore instructive to compare the actions taken by the city’s authorities with the move made by the UAE Central Bank to cap mortgages at 50 percent for expatriates. With Dubai property prices rising by nineteen percent last year, according to Jones Lang LaSalle, the central bank clearly felt that action needed to be taken to cool the market. The question, of course, is whether the cap represents perhaps too heavy a touch on the brakes.

Over a period of three years, the Hong Kong government has tried every trick in the book to slow down the market. Included in the new laws are; a minimum down-payment of 40 percent for mortgages costing more than HK$7m ($902,000), raising stamp duty for non-resident buyers, increasing taxes on property sold within six months, limiting mortgage tenures to 30 years, and mandating that mortgage payments cannot make up more than 40 percent of buyers’ incomes.

While it’s still not clear whether those measures have worked (they did, briefly, at the end of 2011, before prices went rocketing back up again), it’s interesting to note that the Hong Kong central bank decided to take a series of small steps to tinker with the situation. Could similar measures be put in place here — such as mandating the 50 percent mortgage cap for expats only on properties worth, say, over AED1m? That would provide a huge boost to the nascent affordable housing market and help end-users get their foot on the property ladder. What about, as a first step, implementing the mortgage cap for those who don’t have residency visas? Or extracting a sizeable government fee on properties that are bought and sold again within three months?

While the move to cool the Dubai market is certainly welcomed, some observers worry whether it’s too much, too soon. No-one stands to benefit from another overheated property
boom, but everyone stands to lose if the economy suffers.

One final note: don’t expect investors to start flipping parking spots in Dubai. In contrast to Hong Kong, which is one of the densely populated cities on the planet, with mountainous areas ruling out opportunities for further development, space in the UAE — as you will see, if you look outside your window — is not exactly at a premium.

A full report on the UAE mortgage cap will be published in the next issue of Arabian Business, which is out on Sunday.

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Posted by: Afinelita

I think it is better to compare HK and Singapore, but not Dubai. Dubai is unique.

Posted by: Realistics

Unfortunately Dubai developers and authorities think they have the truth and will never learn from anybody. Facts are that the trust in Dubai and UAE RE market is down and will never recover. Business is about trust and there is nothing in Dubai RE that encourages that. No laws, no transparency and no accountability for developers. Then you have the other facts, over charging for low quality services, no HOA and complete volatile RERA decisions. So what to expect from that? overheat? forget it. Some speculators are playing and they are cash buyers, so what is the big fuzz?

Posted by: Nicholas

Hong Kong is anchored to China, and the real estate prices is driven by an exodus of wealthy investors from the Mainland. Demands are real, not artificial. It doesn't need to construct world-wonder or white elephants to inflate property prices.

Posted by: Andy

I agree. Dubai and Hong Kong can not be compared. Anyone who thinks they are comparable does not know Hong Kong and Dubai well. Hong Kong has a huge local population which fuels demand and the demand is even bigger out of China. The Chinese do not need to pay ridiculous visa fees to reside in Hong Kong like non-locals need to pay in Dubai for Visas and Residency Fees. The Chinese also do not need to pay outrageous community fees like DEWA in Dubai for property in Hong Kong.

Dubai can become partially like Hong Kong but only when they revise their local laws and they have a long ways to go with that. The Laws of Hong Kong are nothing near of what they are in Dubai.

Posted by: Lee

What rubbish how can you even begin to compare the two. Hong Kong doesn't need to have its prices artificially bumped up like Dubai does through restriction of supply. Whilst it is clear that there is some return to life in dubai, If there was such a strong demand why are all the cancelled and suspended projects not rapidly springing back to life? Another case of a hapless estate agent trying to bump up Dubai property market!

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