Dubai will strictly enforce existing rules and if necessary set new ones to prevent another bubble from forming in its property market, while cracking down on abuses by real estate brokers, the Director General of the emirate’s Land Department said.
“I don’t believe there’s a bubble forming. We are and we will be further regulating the real estate market,” Sultan Butti Bin Mejren said at the Reuters Middle East Investment Summit.
“We don’t want a sharp increase in property prices that will exhaust the market. This is not healthy and unnecessary. What we’re trying to maintain is a sustainable growth in the real estate sector over the coming five years.”
What happens in Dubai’s volatile property market matters far beyond its borders; when a bubble burst in 2008-2010, pushing property prices down by more than 50 per cent, the emirate came close to defaulting on its debt and financial markets across the world shuddered.
As head of the Land Department, which regulates the property market and is involved in planning Dubai’s rapid growth, Sultan Butti is a key figure in efforts to avert another boom-and-bust cycle.
Partly because of inflows of money from elsewhere in the Gulf, Dubai’s housing market is now rebounding strongly, with prices up over 20 per cent in the last 12 months, according to analysts. The International Monetary Fund warned in July of the risk of another bubble forming.
The latest official statistics suggest Dubai’s dependence on the real estate market – and therefore its vulnerability to any bubble – had not decreased.
Sultan Butti said real estate transactions in Dubai had totalled Dhs195 billion ($53.1 billion) so far this year, up sharply from Dhs145 billion in all of 2012.
“The construction and real estate market now contribute to 24 per cent of Dubai’s GDP (gross domestic product), and this percentage will see a slight growth this year.”
But Sultan Butti, who was appointed to his post in 2006, said officials were alert to risks in the property market and taking a range of steps to reduce them.
This week the United Arab Emirates central bank set limits on the size of mortgage loans for housing – although the caps were less stringent than originally planned, after commercial banks complained they could hurt business.
Mortgage caps may not have a big impact as many transactions are done with cash, but earlier this month Dubai took a step that will affect those deals too, raising the registration fee for property sales to four per cent of value from two per cent. Sultan Butti said the decision would not be reconsidered.
“It was a wise measure that we took to limit speculation in the market and protect investors,” he said. No further increase in fees is planned or being considered, he added.
Dubai’s last real estate boom was marred by some shady dealing, with cheques bouncing and some investors paying for properties that were never delivered. Sultan Butti said the Land Department was keeping a tight grip on transactions and preventing deals from going through without proper registration.
“Our focus now is on regulating the real estate brokers. We’re taking various decisions to prevent bilateral deals that are done at the level of brokerage firms without proper registration at the Land Department,” he said.
“These kinds of unregulated and unmonitored transactions may cause bubbles, and that’s why they are forbidden now.”
In late November, Dubai will learn whether it has won the right to host the 2020 World Expo, which will affect its development plans because of the need to build infrastructure and new hotel space.
Dubai is competing with Izmir in Turkey, Sao Paulo in Brazil and Yekaterinburg in Russia for the right to stage the world’s fair; a vote of the 167 member states of the Paris-based Bureau International des Expositions is expected to choose at an assembly on November 26-27.
Some stock market investors have started speculating that a win for Dubai would push up property prices near the proposed Expo site; if Dubai does not win, that could disappoint investors. But Sultan Butti said the property market would not be hurt in either case.
“We are taking necessary measures to make sure the market will definitely grow in steady steps and the impact will be more tangible if Dubai wins, as it will boost investor confidence and will attract more investors to the country.”
Dubai and the rest of the UAE rely heavily on foreign workers, who comprise most of the population, but only parts of the country are open to property investment by foreigners.
Sultan Butti said that in coming years, he expected new projects and more areas to be offered for freehold by foreigners, with new rules and laws regulating these new developments.
“Allowing investors who come to this country to own their property will attract more investors, and give them an incentive to stay here.”