What level of disquiet ought to be raised by the return of property flipping, where homes are bought off-plan and sold on before being built? The practice was emblematic of the 2009 property crash in Dubai and when the chairman of property developer Emaar and the regional chief of the International Monetary Fund both voice specific concerns about its reappearance, it merits serious scrutiny.
Some degree of speculative investment is inevitable when the economy is doing well, as the UAE's undoubtedly is. Importantly, a lot of the growth is occurring in the private sector. Based on the purchasing managers' index data, which measures non-oil manufacturing and services, business activity is quickening at its fastest pace in five years.
All the indications are that this trend will continue until at least 2017 and probably 2020, aided by the stimulus effect of Dubai hosting the World Expo that year. Especially given the developing nature of the stock markets, property is a compelling investment that has been rewarded with growth of up to 15 per cent for prime locations during 2013. Depending on the figures one scrutinises, Dubai’s property market is still well short of its pre-crash heights and some agents say the market is already cooling, although prices in some areas are now higher than in 2008.
Elsewhere in the world, this issue could be addressed through methods that do not apply here. One is raising interest rates to cool down the property market, but because of the dirham peg to the dollar, that is not an option for the government. Another is to increase the minimum deposit, but many sales here are completed without finance. The transfer fee – a tax levied by the Dubai Government on all property sales – doubled in September from 2 to 4 per cent of a property's value, but the effect of that was negated by Dubai winning its bid to host the World Expo.
There are still tools available to inhibit those who are buying properties speculatively but do not harm those who intend to live in the completed home. One is to introduce stamp duty with a graduated rate depending on how long the property had been held, going from, say, 15 per cent for resales within months and lowering to nothing after a few years.
Flipping is a practice that warrants concern, but the response needs to be measured so it doesn’t cool the economy as a whole.
