Dubai developer says rapid on-sale of properties causes prices to become artificially inflated
The boss of Dubai developer Nakheel has called on property buyers not to support “flippers” by buying off-plan properties days after their initial sale, causing prices to become artificially inflated.
“Prices do not increase by 20 percent in only a few weeks. [Real estate] is a long-term investment and if you can’t reconcile with the fact, I believe you will be contributing to the speculators to stay,” Nakheel CEO Sanjay Manchanda told a group of high level business people at a UAE CEO Clubs meeting.
Flipping – the rapid on-sale of off-plan properties – was particularly common during the Dubai boom and Manchanda believes it was a major cause of the emirate’s 2008-09 property bust, which saw prices slashed by up to 60 percent.
The quick turnover of properties still under construction caused prices to escalate based only on speculation, he said.
Flipping also led to many being left out of pocket when scammers on-sold a single property to multiple people.
Analysts told Arabian Business earlier this year that the re-emergence of new residential developments meant the practice was making a comeback.
But two of Dubai’s largest developers, Nakheel and Emaar, have confirmed they have taken measures to limit flipping.
In January, Emaar said it had introduced a clause in contracts for apartments in its new residential project, The Address Fountain Views, in Downtown Dubai that prevents a property from being transferred into another name until a certain percentage of the total value has been paid to the company.
It would not confirm the percentage, but brokers told Arabian Business it was 30-40 percent, depending on the value of the apartment.
Manchanda said Nakheel now made off-plan buyers pay for the entire property with post-dated bank cheques.
“So the speculator is probably sitting twiddling his hands and fists because there is very little room to manoeuvre,” Manchanda said.
“[Speculative buying] is something which has been done [in] the past, [but now] they’re not coming out of the sales office and flipping the property at 5-10 percent [more than the purchase price]. It may happen still but it’s not as active as it was.
“The frenzy of the past is [over]; we’ve taken some measures, others have taken some measures, the Central Bank has made sure that it does not let people get out of hand, [forcing them to] stop playing the speculative game in real estate.”
Manchanda said a reduced number of speculative buyers also would help boost the mortgage market, which presently makes up only 20-30 percent of total property transactions in the UAE.
An increase in participation from financial institutions would help stabilise the market.
“Pre-crisis, real estate was very much driven by the speculators so no [financial] institution would have the confidence to come into the market,” he said.
“If that can be eliminated, hopefully in the future we will see [more mortgages] happening.
“It’s not going to change the dynamics overnight but surely as the market stabilises we’ll see the banks coming in.”