Dubai raises property-sale fees, hoping to avoid another crash
Concerned about a repeat of the 2008 housing crash, and with prices rising at fastest pace in world, Dubai raises property transfer fee to 4pc
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.
"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.
Even after the fee increase, investors in Dubai will still pay a comparatively low rate, Bin Mejren said. Property-sales tax in the United Kingdom ranges from 4 per cent to 15 per cent, while people pay 6 per cent in France and 5.8 per cent in Japan, he said.
The higher fee will probably have little effect on the rate at which home prices are growing, Knight Frank said in a note. Purchases will still be relatively inexpensive by global standards after the increase, the broker said.
The higher fees will generate additional revenue for the government, which doesn't impose an income tax. Dubai's government debt is estimated at US$25.6 billion, according to data compiled by Bloomberg.
Dubai's economy grew the most in five years in 2012, expanding 4.4 per cent compared with 3.6 per cent the previous year. The emirate's consumer price index rose 1.7 per cent in August from the same period last year, the biggest jump since December 2009, data compiled by Bloomberg showed.
"The additional property fees are a first step, but they are not enough on their own," said Simon Williams, the Dubai- based chief Middle East economist at HSBC Holdings.
"I'm looking to see what other measures Dubai and the UAE will take to guard against a repeat of the boom-and-bust cycle."
Developers including Emaar Properties and Damac Properties have started selling off-plan properties as the economic turnaround sparks new projects. Nakheel said it would start selling 1,200 homes to be built in its International City development.
The recovering real estate market prompted the United Arab Emirates Central Bank to propose caps on the size of mortgage loans relative to the value of the property.
