Dubai’s real state market has seen a positive performance throughout 2014, opening the year with prices and rents increasing within the residential sector in the first two quarters. During the second two quarters of 2014, the market has experienced slower growth levels in villa sales prices and rents. This could have been driven by RERA enforcing tighter government regulations alongside the disparity between buyer and seller expectations.
With the Dubai real estate market behavior in a more healthy and stable condition now, we foresee a period of stability in the residential market. From the actions of governments and banks, it looks like we have learnt our lesson from the previous boom-bust cycle. RERA have introduced new restrictions on the increases on rent prices for real property in Dubai, alongside efforts by the banks to put caps on mortgage loans and doubling transaction fees on property deals.
During the boom-bust cycle starting in 2007, there was a saturation of new developments over flooding the market, resulting in a lack of demand by long term investors or home purchasers. The ‘flipping’ of off plan properties played a huge role in the boom-bust cycle, as investors were purchasing off plan properties at low cost rates with the intent of selling within a very short period of time. This was partially responsible for the collapse of house prices in Dubai 2008. To prevent the cycle reoccurring authorities have implemented new efforts to control sales of off plan developments.
With these new property related laws in place, there is hope that the supply within the housing market will grow at a similar pace as demand, as new developments will be introduced to the market in a much more organized and controlled manner. This approach will result in less nervous investors and may help prices to increase at a sturdy pace.
We have learnt that it is important for speculative buyers to be monitored as majorities do not actually have the money to buy the property, but were just paying the deposit and financing the land. It seems authorities have learnt the effects that this process can have, and consequently have put regulations in place that require the developers to completely own the land before they can sell off plan. In addition to this the land department has double transfer fees and also order buyers of off plan properties to pay in full, clearly reducing the attraction of buying off plan now for speculative buyers.