By Beatrice Thomas
Call for more stringent regulations to avoid the market overheating
Property pundits are tipping the 2013 Cityscape Global to be the biggest since Dubai's 2009 market crash with a slew of big-ticket projects set to be unleashed.
However, as the three-day event kicks off this morning at the Dubai World Trade Centre, experts have called for even more stringent regulations to be introduced to avoid the real estate market again overheating.
Releasing its third quarter Dubai market report today, CBRE said the recent doubling of residential property transfer fees from 2 to 4 percent was not enough to discourage so-called "flippers" from turning over properties.
"Exactly how effective these measures will be in curbing price inflation is still to be determined," the report said.
"However, given the level of cash transactions, it is anticipated that further intervention and regulatory reform may still be required in order to avoid the creation of another price bubble."
The report noted there were 5,175 residential property transactions over the quarter, which totalled AED11.15bn ($3bn), slightly down on last year. Residential rents were up 3.5 percent, while office rents in the central business district (CBD) were up 7 percent over three months.
CBRE head of research & consultancy UAE Matthew Green told Arabian Business the transfer fee increase was comparatively small for investors eyeing potential capital growth over a year.
He said as an added measure to contain speculative buying, regulators should also look to restrict the resale of off-plan properties for 12 months after purchase or to a point of construction completion.
A number of big developers such as Damac, Nakheel and Emaar have already previewed their Cityscape announcements.
The CBRE reported noted bigger names had remained on the property scene, but there was less involvement from smaller-scale private developers.
Green said he was cautious about the number of new projects being launched, saying the renewed growth did not reflect the fundamentals but rather was being driven by speculation.
"From our view, we're concerned that it's rising a little too quickly," he said.
"The sooner we get the market under control, I think that's better for the long term growth of the sector."
Jones Lang LaSalle head of research MENA Craig Plumb said Cityscape was a good barometer of what was happening in the Dubai market and expected it to be the biggest event since 2009.
Along with project launches, investors were back in the market, while the "global" element to the event meant developers were visiting from countries such as Turkey and Qatar as well as selling developments in overseas markets such as London, he said.
Plumb agreed tighter regulations were needed.
He said the increased sales tax would have minimal impact but was "a step in the right direction".
He said a better system would have been to introduce a progressive tax, making the fee commensurate with the length of time a buyer held on to a property.
The longer a property was retained, the lower the transfer fee, he advocated.
Both Green and Plumb said buyers should be weary about off-plans sales, though a better regulated market meant investors were better protected.
Green said while in the past many developers launched projects that "never saw the light of day", regulations requiring 100 percent land ownership and 20 percent construction cost guarantee had made a difference.
However, British Arabian Chartered Surveyors (BACS) managing partner Richard Sweetman said he hoped there was not a repeat of the "hysterical off-plan demand as before".
"It simply did not make any sense at the time, as many found out, and it makes no sense now," he said.
He said he believed product launches, while happening, would be nothing like the scale seen in 2007.
"The markets have a degree of maturity that was absent in 2007, when the more outlandish a project, the more the crowds loved it,' he said.
"The market has grown up a bit since then."
In its Q3 Dubai Residential Pricing Study, BACS found there was a danger in some areas of Dubai of "prices demanded by sellers outpacing prudent acquisition".
In particular, it noted districts Jumeirah Village Triangle, Jumeirah Park and Victory Heights.
However, conversely, Motor City and Green Community DIO were areas with potential for faster growth.
"Fuelled by cash buyers coming in from around the region looking for a safe haven, some areas in Dubai have seen growth on an unsustainable scale, to the detriment of investments yields within these area as rent have not kept pace," Sweetman said.
"Ultimately, one can blame the over-suppressed interest rates in the US for the continuing and insatiable demand to invest in real estate in pegged economies."
He added: "I do not see a bubble about to burst, but I do see a slow-down halt in unsustainable growth in areas that have seen such rapid increases over the past 12 months."