Dubai raises property-sale fees, hoping to avoid another crash

Dubai, the emirate that suffered one of the world's worst property crashes in 2008, doubled property-sale fees in a bid to limit speculation and avert another housing bubble.

The Dubai Land Department will raise the transaction fee to 4 per cent from 2 per cent from Sunday, its director general, Sultan Bin Mejren, said. The change will apply to residential and commercial properties, including those sold before they are built, he said. It won't be retroactive and won't affect industrial real estate.

"This decision will limit quick property speculation, which is harmful to the market," Bin Mejren said. "The market is recovering, and we want to help boost stability and sustainability."

Dubai home prices increased 21.7 per cent in the second quarter, the fastest pace in the world, raising concerns that a second bubble is in the making, a survey by broker Knight Frank showed. The market's revival has prompted a return of advance sales, known as off-plan transactions, that fuelled speculation before the market collapsed and caused prices to drop by as much as 65 per cent.

The increase "may negatively impact property sentiment and demand for the next three to six months", said Digvijay Singh, an analyst at VTB Capital However, "it's the prudent thing to do because the more stable Dubai's fiscal situation is, the better the long-term prospects for property values".

Dubai will introduce further regulations in the next few months, Bin Mejren said. The government recently established a centre to settle rental disputes to replace an existing committee. The centre will have the capacity to review 250 cases a week, up from the current capacity of 100 cases, the Land Department director said.

The average price of a mid-range villa has soared 34 per cent this year to 1,275 dirhams (HK$2,700) a square foot, the highest since October 2008 when property prices began to fall, according to Cluttons' data. The value of real estate transactions rose to 162 billion dirhams this year, from 90 billion dirhams a year earlier, Bin Mejren said.