ABU DHABI // Government intervention is needed to slow down frenetic speculation in the property market, the local chapter of the Royal Institution of Chartered Surveyors (Rics) reports. The organisation found that as much as 80 per cent of property in Abu Dhabi and 50 per cent in Dubai sold this year was snapped up by investors looking to quickly resell their purchases for profit.
"The consequences of this activity are simple: overheating," said Martin Seward-Case, chairman of Rics UAE. "If the gamble pays off, the returns are very high and in the shortest of times. The downside though is that the higher the prices go, the harder they can possibly fall." Last month analysts from Standard Chartered said the Government should enact a capital-gains tax or higher payment requirements up front to slow down speculative buying.
Mr Seward-Case said that Rics agreed with those recommendations, especially as the global credit crunch deepened. "While the worst hit areas are North America, Australasia and Western Europe, the UAE property market should take this opportunity to consolidate its current competitive advantage and act in a more prudent manner," he said. "If interventionist measures are needed to achieve this, then so be it."
Marwan bin Ghalita, the head of the Real Estate Regulatory Authority in Dubai, said he was looking at ways to reduce speculative buying. "We are regulating the sector and speculation is one of the things we are looking at," he said. "Speculators are not helping the market and in some projects, the price is inflated so much that the end users we are looking for can't buy." Mr Ghalita did not know whether the Government was considering a capital-gains tax but pointed to the preregistration programme recently announced at the Dubai Land Department, saying it could help track sales better.
"I think the market is becoming more mature now and the practice that used to be there will disappear and will go to the other markets," Mr Ghalita added. Some property developers are starting to confront speculative buying by restricting resales. Last week, Nakheel revealed that buyers at the Trump International Hotel & Tower on Palm Jumeirah will not be able to resell their flat for a full year. Other developers, including Emaar and Union Properties, are requiring a larger minimum down payment or imposing transfer fees for early resales.
But Mr Seward-Case said it was "the smaller developers that may need regulation to bring them in line with this philosophy". Some developers were "fuelling" the speculation by offering payment plans that require only a small deposit, he said. "A property transaction can actually be started and completed inside of a week if the seller and buyer are motivated," he said. The Standard Chartered study said the most salient indication of rampant speculation in the Dubai market was that buyers would pay more for a property from developers than from private sellers on the secondary market.
On the secondary market, buyers must pay more up front because they are taking over someone else's payment plan. Mr Seward-Case said that some investors were making a 50 per cent return with only a five per cent investment in a matter of weeks. Speculative buyers need only a small down payment when purchasing property straight from the developer, meaning they can wager less if they plan to sell it for a quick profit.
"External investor confidence in our property markets are vital and we believe a message needs to be sent out to those external investors that the UAE is very serious about the long term," he said. "Short term opportunism by speculators should not compromise the longer term balance and direction of any market." @Email:bhope@thenational.ae See 2010: A Space Odyssey, b8