Dubai: Speculative transactions are rearing up once again in Dubai as off-plan properties launched just six or more months ago turning up in the secondary market at inflated asking prices. As of now, the number of such speculation-backed properties is still on the lower side, but enough for industry observers to sound out warnings.
“Some properties are reaching the secondary market; however buyers [as of now] are only seeing premiums of around 3-5 per cent,” said Richard Paul, associate director at Cluttons. “This is a definite concern as speculators inevitably cause false inflated pricing and short-term sales fluctuations. In order to gauge long-term rental and capital growth trends, transactions effected by speculators require to be discounted and be viewed very conservatively.”
And concerns there are. Last year saw only a limited number of new projects – and off-plan properties – getting released. That is not the case over the last eight weeks or so – leading developers are in the mood for high-profile projects, and some of them were sold out within days if not overnight. Last week, Damac Properties launched a $1 billion four-tower cluster featuring the Paramount Pictures branding and featuring more than 1,400 serviced residences,
The question then is how many of these off-plan properties launched in recent weeks will make it into the secondary market later this year and thus fuelling a higher degree of speculative transactions. It was to pre-empt any such volatility that the Central Bank circulated the note about capping mortgages to expatriates at 50 per cent of the property value. (That this move has been put on hold for the time being is another story.)
But mortgages have had little role to play in the recent launches, which were dominated exclusively by cash upfront investors. There is no guarantee that many of them would want to stay on with the project until completion.
One factor that is preventing the immediate release of these properties for speculation are the strict clauses in the original sales and purchase agreements (SPAs).
“The government is keen to avoid speculative price growth and is planning to introduce a number of measures to curb this,” said Craig Plumb, head of research at Jons Lang LaSalle. “This is translating into efforts from the developers themselves; it is interesting to note Emaar is seeking to reduce speculation and minimise default risk by collecting 40 per cent of instalment proceeds within a year of selling a unit, during which time purchasers are not allowed to sell on the property.
“Not all of the interest in the new launches is from new investors, with some of the buyers taking advantage to use credit notes in respect of early projects.”
But there is no such thing as a speculator-proof SPA. “Despite clauses to discourage ‘flipping’ before a certain amount of the sales price is paid [around 30 per cent], a number of units did appear on the secondary market at a premium within days of some off-plan launches,” said John Stevens, managing director, Asteco Property Management. “But these are isolated cases.”
But the question is will they remain so? For Dubai real estate’s longer term stability it is a given that speculative buying and selling should not be allowed to gain traction.