The collective memory of a community need not necessarily be equal to the sum total of individual memories and experiences. In fact, the impact of adversities on the collective psyche may be much less when compared to individual experiences. The link becomes even weaker when it comes to a market, which is more adept at dealing with a horrible past than their victims.
The Dubai property market seems to have finally put its past behind, although it is doubtful if those who burnt their fingers in its savage phase would ever make it again. But a market has its own modus operandi and will always find its participants, who might be willing to experiment again and take risk with those calculations that didn’t quite add up.
While there are clear signs of a turnaround in the Dubai property market, it is disquieting that the two most dreaded words of the boom time – off-plan and flipping — are making a comeback to the market terminologies. Flipping of off-plan purchases was the basic ingredient of the deadly concoction that brewed Dubai’s real estate crisis and any suggestion of their reappearance is spine chilling.
The first mention of off-plan in Dubai property market’s recovery phase happened in reference to the launch of the Address Residence Fountain Views, Emaar’s new downtown Dubai development. The premier developer announced that all the properties on offer were booked off-plan and allotted on a first come first serve basis, with a down payment of 15 per cent. The high turnout has encouraged other developers, including once arch rival Nakheel, to announce new luxury projects.
Latest reports suggest that now speculators are also back, hoping to make a quick buck through cash purchases and then flipping of the properties. This is a most dangerous tendency, which if not stemmed straightaway, can spoil the party once again. The genesis of the property crash can be traced to multiple flipping of properties that existed only on paper, leading to the creation of bubbles that inevitably had to burst.
The Dubai Real Estate Regulatory Agency (Rera) which has had the ominous distinction of presiding over the Dubai property crash, although its original role was something totally different, has to intervene effectively to stop the practice of flipping, if the nascent recovery in the market is not to be jeopardised. Safeguards against flipping could include enforcement of lock-in periods for property purchases and strict monitoring of re-sales to ensure that prices are not artificially inflated for profit taking. It is a golden opportunity for Rera to rediscover itself and perform a befitting role, compared to whatever it is doing currently.
There is guidance available from property markets such as Singapore and Hong Kong, comparable in many ways to Dubai’s own property sector, which have initiated prompt action to prevent overheating in their respective markets. The measures include levying of new taxes for luxury developments and strict monitoring of all property transactions. Even in Mainland China, the government has announced new restrictions, including regulation of mortgage financing, to control skyrocketing property prices.
The UAE central bank had proposed very stringent mortgage financing norms in keeping with the international regulatory trends, but the banking regulator has virtually been shouted down by the powerful bank community and other interest groups. After forcing the central bank to suspend implementation of its own criteria, which had envisaged a loan to value ceiling of 50 per cent for expatriates for the first home and 40 per cent for the second and 70 per cent and 60 per cent, respectively, for UAE nationals.
The banks have since got the central bank to launch a process of consultation and in all probability gained acceptance for their proposal for a 75 per cent ceiling for expatriates and 90 per cent limit for the UAE nationals.
The Dubai property sector is in need for moderation in all respects if it is to ensure a smooth recovery of the market and avoidance of the pitfalls of the unregulated boom that led to its infamous crash. The moderation has to happen at all levels: developers, regulators, market operators, investors and even with expectations.
— The writer is a UAE-based journalist.