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Sat 31 Aug 2013 11:12 AM

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Dubai in danger of new real estate bubble - property CEO

Propertyfinder chief says prices will inflate artificially if speculators continue to be able to flip assets

Dubai in danger of new real estate bubble - property CEO

Dubai is in danger of creating another artificial real estate price bubble if speculators continue to flip assets, the CEO and founder of Dubai-based has said.

"Speculators are not helping the market and if cash-rich investors continue to acquire assets and flip units, the market will be led to another artificial price bubble. Ultimately, prices will inflate so much that the end users we are looking for will not be able to buy,” said Michael Lahyani.

His comments came in a statement responding to recent news that the Dubai government is to set up a judicial committee to oversee the liquidation of stalled property projects in the emirate.

They follow similar concerns voiced last month by the International Monetary Fund which warned Dubai that the emirate might need to intervene in its property market to prevent another boom-and-bust cycle of the kind which brought it close to default four years ago.

Over-inflated Dubai real estate prices crashed by more than 50 percent in 2009 and 2010, triggering a corporate debt crisis which unsettled financial markets around the world.

Lahyani said the proposal has "struck a chord with investors frustrated by project delays, cancellations and a lack of regulation".

The committee is expected to help investors get their money back in the event of cancelled projects by selling the developers’ assets in an auction or through funds available from the deposits in the escrow account.

He added that the setting up of this panel will remove the levels of "complexity characteristic of legal systems and offer investors a viable alternative to time consuming and expensive court procedures".

However, he added that the property industry in Dubai was waiting anxiously for the launch of the panel, saying that while it was "a welcome ruling" it raised numerous questions.

He said: "Firstly, we need clarity on how the panel will approach cases that are currently under trial. Secondly, the committee needs to decide the course of action for those cases that have never come to court due to the expenses involved and developers going bust or fleeing the UAE. How it will go about liquefying these projects and arranging for financial settlements is presently unclear,” Lahyani asked.

He said investor groups have continually called for government intervention against unscrupulous practices by developers.

According to data from RERA, over 215 projects fell through in Dubai between 2009 and 2011.

Countless projects were announced during the Dubai property boom but were postponed or cancelled – either partway through construction or before work had begun – when the market dramatically dropped in 2008-09.

Many sites have sat idle for several years, although not all affected projects have been officially cancelled and some developers claim frozen projects, such as Palm Jebel Ali and The World, will still go ahead.

“Long-term investor confidence is vital to the UAE. Short-term opportunism by speculators should not compromise or override the longer-term sustainability and direction of the realty market. A regulatory environment is just what we need to help the property industry achieve its balance,” said Lahyani.

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anil kapur 6 years ago

I do not agree with these comments. One thing which needs to be well understood and appreciated is that prices today are stil almost half of the prices 2008. Since 2008 even if we take the inflation as 5 percent then natural prices should be 2008 prices plus around 28 percent on those prices. Reality is totally diffeent. So, to my mind there is nothing to worry. Let the prices be consolidated and allowed them to come to their natural level.

shaheen 6 years ago

This property flipping makes a good revenue for the Lands Department which gets paid 2% of the property value paid by the buyer to register the transaction. So on a sale of a unit priced at Dhs 1,000,000 the Lands Department makes Dhs 20,000. The real estate company will also get a 2% commission from the buyer. This flipping has it's benefits as it generates revenue. Ofcourse the bigger picture could be yet another property bubble burst.

jonjon 6 years ago

Over-inflated Dubai real estate prices crashed by more than 50 percent in 2009 and 2010, triggering a corporate debt crisis which unsettled financial markets around the world.
who is dubai in regards to the global economy? get your facts straight first

John 6 years ago

@anil kapur Do you think the prices in 2008 were realistic! OMG!!

Peter 6 years ago

A solution could be, that a property can only be sold on the seond Hand marekt when 80% has been paid. This would mean, that a lot of cash is bound for the "flippers". Like this, they would be out of the market in great numbers. Seems simple and very effective.

Ron 6 years ago

Property prices in Dubai are starting to escalate at levels that are frightening. In addition, the lack of handovers caused to simply drive rents up is causing a massive lack of available property 'stock' in many areas. Those arriving in Dubai for the first time and seeking property for their families are having a hard time. The additional impact of having to pur down at least 15 to 20% as a downpayment hampers the ability to drive 'real' growth. Todays growth is totally artificial and driven by those cash rich property 'flippers'.... it's high time that a sense of stability was brought back to this market before another financial problem....

Stephen 6 years ago

It's the most elementary economics, although unfortunate for genuine souls caught up in the mess. If people wish to pay the ludicrous inflated values asked for many properties, let them. If a buyer exists, the property is worth that much. If no buyer exists, it stagnates or falls. The issue becomes self regulating as yet again, the UAE will price itself out of business and individuals and commerce will go elsewhere. The truly irritating aspect for many of us is the staggering amount of media space allotted to something of such little merit and importance in the global arena.

Mark Renton 6 years ago

Stephen, I would say that the truly irritating aspect, for those of us that live and work in Dubai, is the prospect of the property frenzy causing the cost of living to spiral out of control regardless of whether you want to invest in Dubai real estate or not.

Ed B 6 years ago

Stephen, your view is a typical banhkers view, the rich get richer very quick at the expense of the business and midclass.

Selfregulation can be good for a mature settled economy, but and unstable and relative small economy like UAE needs tweaking and "some" regulation to protect it from damaging market behaviors.

Self regulation of a property market in the UAE means automatically "pyramide scheme", and we all know that is bad / there is very high risks attached.

stephen 6 years ago

Ed B- I'm not a banker & I have a business here & therefore I detest what's happening but understand its inevitability. Whilst it's morally & commercially undesirable for the current scenario to unfold like the last one, "tweaking" as you put it, is not an exact science anywhere. History teaches us here that it will probably make things worse.
Mark R - Agreed; it's only one irritating aspect but it is self regulating