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 propertyfinder.ae 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.For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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