Nakheel chief urges crackdown on property 'flippers'

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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.”

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Posted by: Alex

Whilst it is fair to say that some developers have managed this better than others, there does need to be some regulation introduced to limit 'flipping' as this does drive 'non sustainable' demand and price escalation. It is the duty of the developer to refrain from property transfers until at least 30-40% is paid, and for any secondary buyer signing an MOU with the primary buyer and taking over the responsibility to pay the installments without an official transfer, do not come running and complaining when it goes wrong.

Posted by: Donovan

Nakheel lecturing on anything is a joke, I see press releases where they are stating "it is raining cash" at the same time they have thousands of investors who put their life savings in projects like Palm Jebel Ali and have no recourse but to sue them.

Posted by: Expat

Hey Sanjay, instead of preaching to others, how about looking internally instead? Why don't you start by returning the deposits for properties Nakheel never built to customers? Perhaps that would bring some credibility back to the property market in Dubai, and would have a much more meaningful impact in the long term than cracking down on flippers.

Posted by: Bashir Geneva

At the peak I remember (now defunct) companies like Dynasty Zarooni taking just two per cent deposits.

It allowed many individuals with limited resources to effectively control massive amounts of real estate.

20,000 USD could control 1,000,000USD worth of real estate.

It hugely distorts the market, as these transactions appear as a sale, encouraging more launches and new projects.

It absolutely does NOT indicate genuine demand.

Higher deposit rates and longer hold periods are a good call.



Posted by: Ronald

The speculators are indeed a necessary evil because they give a new market a perceived volume and therefore attract some real money. But unregulated as Dubai was and still is, largely, the speccies were the dominant breed. Just like ramping shares, it is a given in a "free market"but when the speculators took over and it became a Ponzi scheme in effect, that is when the bottom fell out of the market, long before the global crash that is blamed for the 70 per cent drop in Dubai property prices.

Posted by: Henry Lascelles

Couldn't agree more.

I always got the feeling the locals were sort of tricked or didn't realise this was happening.
Collecting a tiny 2 per cent from investors was irresponsible and blatant disregard for Dubai's long term prospects.

On paper it looks like demand, but the reality is there is no real commitment- just a few people having a punt.

I would love to hear opposing views to this- as some people do argue speculators are necessary.

Posted by: nice

The worrying comment in the article is the requirment for new buyers to give Nakheel post dated cheques for the whole of the purchase price. This assumes that Nakheel will deliver on time - as I had thought that RERA requires that instalments are supposed to be based on construction milestones. Is the insistence on PDCs a way for Nakheel to criminalise their debtors if they fail to pay even if they have good reason? Its not supposed to be a criminal offence but you can bet that there will be issues down the line. What I dont understand about the new primary market in Dubai is that its more expensive than the secondary market for completed properties - yet you take development risk and delay. This is becuase people think prices will rise - but they will rise on completed buildings too if that's the case. I would never invest off plan in the UAE again...the rules don't protect buyers and you have to trust the untrustworthy.

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