Last week, news emerged that the Dubai Land Department (DLD) was doubling transfer fees to 4 per cent. However, the rise didn’t come as much of a surprise.
After all, there has been increasing concern that the emirate’s residential market is overheating. Our Global House Price Index shows that Dubai prices rose by nearly 22 per cent year-on-year in the second quarter of 2013.
In recent years, such “cooling” measures have also been introduced in other markets. Indeed, both Singapore and Hong Kong have implemented a number of policies since 2009, albeit with varying degrees of success.
This is reflected in the fact that, in annual terms, in Q2-2013, prices continued to see double-digit rises in Hong Kong, while Singapore saw a relatively modest increase of 4.5 per cent — a sharp slowdown compared to mid-2010 levels.
In Singapore, several rounds of measures have been introduced since 2009. Among these was the Additional Buyer’s Stamp Duty (ABSD), introduced in December 2011; it comprised a 10 per cent levy for foreigners and certain entities. But given that it wasn’t particularly effective, in January 2013, the ABSD was raised to 15 per cent for foreigners.
Moreover, permanent residents, and Singaporean citizens buying their second property, were also brought under the regime. One of the more recent measures — locally dubbed as ‘cooling measure 7.5’ — is the Total Debt Servicing Ratio (TDSR) framework. This requires that the total debt servicing ratio for any property buyer in Singapore must not exceed 60 per cent of their income.
What’s more, since 2009, a number of policies have been implemented in Hong Kong. These include a 15 per cent property tax on foreign buyers, mortgage restrictions and taxes on quick re-sales. Furthermore, earlier this year, the stamp duty was raised from a flat fee of HK$100 (Dh47) to 1.5 per cent for property worth up to HK$2 million. Anything over the HK$2 million saw stamp duty double from 4.25 per cent to 8.5 per cent.
So in context of all these measures, Dubai’s rise in the transfer fee doesn’t look particularly severe. Indeed, all else being equal, we are unconvinced that it will act as a significant brake on residential property demand, and thus price growth. There are several reasons for this.
First, Dubai’s new transfer fee is still much lower than the 15 per cent property tax being imposed on foreigners in the two Asian-Pacific markets, for example. That is important given that about 90 per cent of residential transactions in the emirate are accounted for by foreign buyers.
Second, despite the doubling in the transfer fee, the total costs associated with buying residential property — especially in the prime bracket — remain much lower in Dubai than some other popular locations around the globe.
Third, with prices currently rising at an annual rate of more than 20 per cent in the emirate, the 2 per cent rise in the transfer fee — while a bitter pill to swallow — is unlikely to be much of a deterrent for property investors with a view that Dubai’s residential market has further gains to make.
That said, in the short-term, we wouldn’t rule out a slowdown in the emirate’s residential price growth rate. However, we anticipate that once the market adjusts to the new development, it will likely be business as usual.
All in all, we think that some other “cooling” measures could also have been implemented to achieve the desired effect. For example, any seller transferring a property a short while after the initial purchase could have incurred higher costs.
Moreover, the hike in the transfer fee perhaps should have excluded end-users. And, finally, the Dubai Land Department would have done well to provide the market with a grace period of two to three months on agreed sales to prevent potential disarray among those involved in a transaction process.
— The writer is research manager at the property services firm Knight Frank.