Fears soaring Dubai property prices risk hitting competitiveness

A "huge increase in real estate [prices] will affect competitiveness negatively. A moderate growth or even stabilisation will be more beneficial to the overall economy,” the Chamber of Commerce and Industry's president adds.

The Dubai Skyline on Sheikh Zayed Road in Dubai. House prices in Dubai rose by an average of 22 per cent in 2013. Pawan Singh / The National

Further rapid rises in property prices risk undermining Dubai’s competitiveness, the president of emirate’s Chamber of Commerce and Industry warns.

“The competitiveness of doing business was really improving the past four years and we hope to be able to continue improving in this by controlling the real estate market,” said Hamad Buamim, the chamber’s president and chief executive, who is also a board member of the Central Bank.

“A huge increase in real estate [prices] will affect competitiveness negatively. A moderate growth or even stabilisation will be more beneficial to the overall economy.”

Rising rents have hit the disposable incomes of many consumers while at the same time increasing wage pressures for employers.

Mr Buamim said there was “enough supply” in the commercial market to help to tame growth in prices.

Economists have, however, forecast that upward momentum in prices is expected to stoke inflation to its highest level in six years this year.

Mr Buamim was speaking yesterday as the chamber released its annual report for last year packed with data reflecting a rebounding economic outlook.

He lauded recent measures taken by the Dubai Government and the Central Bank in helping to manage the market.

The chamber attracted more than 13,000 new members last year, the highest number in five years.

Members’ exports and re-exports rose by 8 per cent last year to reach Dh268 billion, slightly down from the 9 per cent rise in 2012. The chamber estimated Dubai’s GDP growth reached 5 per cent last year, the highest increase since 2007.

But while the year marked continuing momentum in Dubai’s core pillars of trade, retail, logistics and tourism, it also signalled a recovery in the property market.

House prices in Dubai rose by an average of 22 per cent last year, with less dramatic increases forecast this year, according to Jones Lang LaSalle, the property company.

The increases follow several years of stagnation in the market since the deflation of a property bubble in 2009, helping to keep rents low for businesses and residents.

Emirates NBD, Dubai’s largest bank, expects UAE inflation to reach 3 per cent this year, up from just over 1 per cent last year.

“The inflation outlook for 2014 is less benign than it has been for several years as we do expect higher housing costs to gradually feed through to the official inflation indexes,” wrote Khatija Haque, the head of Mena research at the bank in a research report released yesterday.

In a bid to help cool the housing market, the Central Bank in October issued long-awaited regulations capping the amount of money that homeowners were allowed to borrow to between 60 and 80 per cent of a property’s value.

The same month, Dubai Land Department doubled property sales fees to 4 per cent from 2 per cent.

Mr Buamim said the recovery in prices last year supported investors and businesses, which had been operating with property assets below their cost value.

But he said it was important the property market remained an “enabler” rather than a “driver” of growth.

“Real estate is not a sustainable sector in the long run, it is a very important supporting sector, enabler,” he said. “However, historically it has never been a driver of the economy in the long run.”

He highlighted Dubai’s bid to become a centre for the Islamic world economy and the emirate’s hosting of the World Expo 2020 as important factors in driving future growth.