The Palm Jumeirah will be home to the Trump International Hotel & Tower, which is commanding some of the highest prices in Dubai.
The Palm Jumeirah will be home to the Trump International Hotel & Tower, which is commanding some of the highest prices in Dubai.

Nakheel curbs speculators

ABU DHABI // Buyers at the Trump International Hotel & Tower on Palm Jumeirah will have to wait a year before they can sell their apartments on the secondary market, Nakheel officials said yesterday. The decision to restrict buyers at the sought after property is part of a growing wariness among major developers about high-speed speculation in the market.

Emaar, which is building the Burj Dubai, is one of the developers restricting secondary sales of its properties until buyers have paid 30 per cent of the cost. Others are setting up transfer fees that give buyers incentives to hold onto their apartments for longer. "Doing this indicates that they recognise the problems at hand and how speculators have flipped their properties," said Mary Nicola, an economist at Standard Chartered. Last week, Ms Nicola co-authored a study called Dubai - A tale of two housing markets, which called for new laws and a capital-gains tax to minimise speculation in the market.

The report uses the example of Las Vegas to illustrate the problems with markets that became overheated and eventually reversed. Las Vegas was a hotbed of investment starting in 2004, when an estimated 7,000 people were moving to the city every month. During 2005 and 2006, speculators stormed the market, sending prices soaring. But when the subprime problems emerged in the economy and the ensuing credit crisis hit, the property market collapsed.

"To this day, the housing market in Las Vegas is one of the hardest hit in the US," the report said. To the researchers, the clearest sign of speculation in Dubai is that buyers will pay more for a property from developers than from private sellers on the secondary market. This anomaly is because buyers need only a small downpayment when purchasing from the developer. On the secondary market buyers must take over the existing payment plan, and this requires a larger downpayment. Speculators want to put as little money down as possible, so will pay a higher price to buy from a developer.

This shows that many people want to buy apartments with very little money paid upfront - an option offered by developers and not by those on the secondary market. This is a key characteristic of speculative buying. Another discrepancy is that off-plan properties are selling for the same price as a completed property; usually, a finished property commands a premium because a buyer can move in earlier or even let it out.

Anecdotal evidence is perhaps the most telling. At Cityscape Abu Dhabi this year, organisers reported that people were selling their places in line at property booths and tickets to the event for thousands of dirhams. And at property launches around Dubai, would-be buyers begin lining up the night before to compete with the crowds of people wanting apartments. The Trump Tower, located on the trunk of Palm Jumeirah, is commanding some of the highest prices in Dubai. Of about 50 apartments sold during pre-sales, some reached as high as Dh12,000 (US$3,267) a square foot. Only Emaar's Burj Dubai has had sales above those prices.

In addition to creating resale restrictions at some projects, Nakheel has also stipulated new rules for land sales. Buyers of plots of land cannot resell until they have completed their development within a certain amount of time. Emaar also restricts resales of land plots. And all its buyers must now pay 30 per cent of the price - which usually takes one year under the current payment schedule - before they can resell their apartments.

An Emaar official said it was banks that shouldered the majority of the risk because they were funding the purchases and susceptible to fluctuations in the property market. "Right now, the risk of speculation is mainly with the banks," the official said. "That being said, we are certainly aware of it and making decisions to mitigate it where necessary." Union Properties, the developer behind MotorCity and UP Tower, now requires buyers to pay 20 per cent of the property value before reselling. In some cases, the company is implementing a transfer fee of as high as 10 per cent to cut back on speculative buyers.

Zaid Ghoul, the chief financial officer of Union Properties, said the market was undergoing changes to curb speculation. "The mechanism of transfer fees will change with the new laws and regulations coming into effect to deal with this area," he said. "Changing the payment schedule is not a common practice, but could happen based on market conditions." Still, Ms Nicola said action from developers alone would not be enough to prevent the growth of a speculative bubble in the property market.

"Control from the state is what is needed," she said. "It would be difficult for individual developers to really control this."

Why it pays to compare

A comparison of sending Dh20,000 from the UAE using two different routes at the same time - the first direct from a UAE bank to a bank in Germany, and the second from the same UAE bank via an online platform to Germany - found key differences in cost and speed. The transfers were both initiated on January 30.

Route 1: bank transfer

The UAE bank charged Dh152.25 for the Dh20,000 transfer. On top of that, their exchange rate margin added a difference of around Dh415, compared with the mid-market rate.

Total cost: Dh567.25 - around 2.9 per cent of the total amount

Total received: €4,670.30 

Route 2: online platform

The UAE bank’s charge for sending Dh20,000 to a UK dirham-denominated account was Dh2.10. The exchange rate margin cost was Dh60, plus a Dh12 fee.

Total cost: Dh74.10, around 0.4 per cent of the transaction

Total received: €4,756

The UAE bank transfer was far quicker – around two to three working days, while the online platform took around four to five days, but was considerably cheaper. In the online platform transfer, the funds were also exposed to currency risk during the period it took for them to arrive.

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