Will Dubai’s new transfer fee have the right effect?


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Roughly 70% of property sales in Dubai in 2012 were made on a cash basis, at a value of around $30bn.

Roughly 70% of property sales in Dubai in 2012 were made on a cash basis, at a value of around $30bn.

Last week, Sheikh Ahmed Bin Saeed Al Maktoum, chairman of Dubai’s Supreme Fiscal Committee, revealed that the emirate was planning new regulations to prevent the risk of a new bubble.

The rumour in the market right now is that one of those proposed new regulations will involve the Land Department doubling its transfer fee on the purchase of any new property from 2 percent to 4 percent – except on the initial purchase of the unit from the developer, which would stay at the previous level. If true, that would have a huge effect, especially among those buy-to-live purchasers who are scrabbling to get their first foothold on the emirate’s real estate ladder.

Instead of paying AED40,000 for the opportunity to live, say, in an AED2m home, potential buyers would have to stump up AED80,000. Given that a considerable number of would-be purchasers tend to push themselves to their credit limit in order to buy a home, the new measure would remove a swathe of interest in the market. Many of these may opt to buy a smaller home, but many may decide to ditch the prospect of investing in their house altogether.

On the flip side (so to speak), this measure would also go some way to curbing the immediate resale of properties, some of which are back on sale a matter of hours after a particular project is launched. Brokers may have to think twice about buying batches of units direct from the developer. And it would also have the effect of encouraging buyers to purchase new homes directly from developers, in what might previously have been seen as marginally less desirable areas.

This wouldn’t be the first time that the UAE has acted to try and calm down rampant price hikes in the Dubai property market. In December last year, the country’s central bank said it would limit mortgages to 50 percent for first-time foreign buyers, and to 70 percent for locals. The move caused consternation for local banks – who have seen their profits boosted substantially by a new binge on consumer borrowing so far this year – and a prolonged period of negotiation resulted. It now seems likely that the mortgage cap will be set at around 75 percent for first-time foreign buyers, and at 80 percent for locals.

But the jury will remain out as to whether either of these two measures will actually do that much to curb the speculation that drove Dubai house prices through the roof back in the heyday of the mid-2000s. Roughly 70 percent of property sales in the city in 2012 were made on a cash basis, at a value of around $30bn. There’s no chance that the mortgage cap will affect those big-money buyers, and I’m not convinced that the transfer fee hike will make too much of an impression either.

The move follows the example of Hong Kong, which in February doubled stamp duty for most purchases to 8.5 percent, prompting a colossal drop in transactions on the secondary market. The city’s house prices have risen by only 8 percent this year, in comparison to a 26 percent hike last year. Real estate brokers have taken to the streets in their droves to protest the new measures.

The big difference between Dubai and Hong Kong, of course, is the percentage of cash buyers that are looking to buy homes in the UAE, so it’s unlikely that the Land Department’s approach will have quite the same effect. A different approach, as proposed by this magazine in the past, would be to put transfer fees on a sliding scale; so an 8 percent fee if the property is sold within six months, a 6 percent fee within a year, and so on.

But the fact that local authorities are recognising that there is a possibility that a new bubble will form – and are taking active steps to address that – has to be good news for Dubai in the long run.

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Posted by: Sohan

One of the few sensible and analytical articles I have seen on this topic. I too have been questioning the universal doubling of transfer fees regardless of time between purchase and sale, and especially that the decree does not have a grandfather clause. It simply makes no sense for someone who bought an asset in 2006 and held onto through the collapse to be charged upon resale at the same rate as someone who bought an asset last week.

Posted by: European Investor

I decided last year to invest heavily in Dubai for the love of the city. Today, I am left with huge question mark on such a behavior to increase the fee by full 100% and give 6 days to finish all your paper work. I was at Emaar and Nahkeel offices to speed up the process of pending transactions and found literaly a zoo of people lined up in fear, agony and disbelieve. These developers were swamped with customers from everywhere. At least you should give 2 to 3 months notice. Let it disiminate into the market gracefully and earn the trust of investors.

Posted by: European Investor

@Telcoguay, Yes I do invest out of Love. If I do not fall in love with a property, I will never buy it. This is simple and I am surprised you are questioning it. It shows lack of knowledge into this market or may be you should stick to your techies stuff better. Real estate requires both a big heart and a big pocket which I don't think you have them!

Posted by: J7B

I am due to complete on a property next week, I am not a speculator but a first time buyer looking for a home to live in. I budgeted and saved to get the money to buy a home, now I am being put at risk by a hastily implemented law that will demand a further 2% (50000AED) from either me or the seller. I didn't budget for this, why would I?
The people causing the property bubble are the speculators with multiple properties. They are the 70% making cash purchases, target them, not the end users looking for a home. The flippers will just put the 2% straight on the price of the property, thus this law actually inflates the market!
Charge say 15% if you sell the property within a year of title completion, 10% within 2, 5% within 3, and do it on owners with more than one property registered in Dubai. That will stop the bubble and leave the real end users in the market and stabilise the market. Also implement it in 4 months to allow current purchasers to make an informed choice.

Posted by: Joe

I am due to complete on a property next week, I am not a speculator but a first time buyer looking for a home to live in. I budgeted and saved to get the money to buy a home, now I am being put at risk by a hastily implemented law that will demand a further 2% (50000AED) from either me or the seller. I didn't budget for this, why would I?
The people causing the property bubble are the speculators with multiple properties. They are the 70% making cash purchases, target them, not the end users looking for a home. The flippers will just put the 2% straight on the price of the property, thus this law actually inflates the market!
Charge say 15% if you sell the property within a year of title completion, 10% within 2, 5% within 3, and do it on owners with more than one property registered in Dubai. That will stop the bubble and leave the real end users in the market and stabilise the market. Also implement it in 4 months to allow current purchasers to make an informed choice.

Posted by: Alan Raymond Godfrey

In this weeks 7 Days, there is a Full Page Advert for the Jumeirah Golf Estates, Sanctuary Villas, it says that ?Land Title Deed from DLD issued upon 40% Payment" I kid you not, it might as well say "Flip Me, all Flipper's welcome.

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