Dubai needs to regulate its off plan property market and monitor the rising levels of cash transactions to ensure sustainable growth and avoid a bust, an industry expert has warned.
“There is a lot of capital coming into the market specifically within the residential market,” said Mat Green, head of research and consultancy at CBRE, Middle East.
“We are not yet back to 2008 prices but in some individual projects we are. So we certainly need to monitor them carefully.”
Dubai’s house prices, which grew more than 30 per cent in 2013, registered a quarterly growth of six per cent in the first few months this year, CBRE said in a recent report.
Although experts have indicated that regulations such as the doubling of property transfer fees and the mortgage law have helped curb flipping, the emirate has been seeing a rise in off plan sales in the market.
A recent report from property consultant Asteco highlighted the rising investor interest in Dubai’s competitively priced off-plan developments offering attractive payment options. A number of off-plan properties in the market have also reported strong investor interest.
Emaar launched the second phase of its apartment complex Mulberry at Park Heights in Dubai Hills following strong demand while Deyaar’s Atria was reported to have sold out within hours of opening the sale.
“As we move to 2014, regulations will have a little more impact and we expect the levels (sales prices) to dampen just slightly but there is still more that needs to be done in regulating the off plan market since that is where the growth is being driven from,” said Green.
“If sales are going to take place during off plan then we could have a higher transaction fee during that period and lower fees after to try and encourage people to hold on to that property for a longer period.
“Ultimately we want to attract long term investors to Dubai, the short term view is obviously a dangerous one because it escalates prices and does not help the market to mature where people are actually coming in, looking to hold a property and benefit from what Dubai has to offer in the long term,” he said.
The rise in off-plan sales could lead to prices reaching 2008-levels as speculators could artificially inflate the market, Green warned.
He emphasised that the market also needs to monitor the development pipeline, which runs a risk of over supply.
“One of the potential risks here is that we have a lot of land available for developing and we also have a high demand for speculative off plan developments,” said Green.
“We can see that the number of units currently being developed are increasing, but they have not reached a point where we could call it a risk. Once you start to get to higher annual delivery, say 25,000 units a year, then it would be more of a risk. But it is something we need to monitor along with the other areas of the market.”