Issue No 282 - 08 Sep 2008
Analysis: Dubai clamp 'good for long-term investors'

Dubai's highly publicized efforts to clean up its real estate market have dented investor confidence and sent property shares into steep decline but are likely to strengthen investor confidence in the long run.

In recent months, new rules on off-plan sales -- selling buildings before they leave the drawing board -- followed more stringent mortgage regulations and clearer curbs on developers trading residence visas for home sales, all in an apparent effort to curb speculation.

'In the short term, they seem to be having a negative impact for people who are exposed in the market as they might think that these are the end of the good times,' said Sana Kapadia, equity research associate at EFG-Hermes.

'But in the medium to longer term, people will realize that these initiatives will provide transparency and confidence to the market,' Kapadia said.

There has been a rout in property stocks, with listed leader Emaar falling more than 13 percent in August, as investors flee in fear of where the regulator might strike next.

Dubai property prices soared after the emirate opened its doors to foreign investors in 2002, as expatriates, lured by its glamour, safety and status as a tax haven, piled in to the real estate market.

To the outsider, it seems to be smooth running at the glamorous seaside emirate, with its luxury skyscrapers, indoor ski resort and sail-shaped landmark, the Burj Al Arab hotel.

But the Dubai real estate scene can be hard going. Investors often see hopes dashed as developments are delayed or cancelled while families face landlords with unchecked power to evict them to extract higher rents.

While the moves may be threatening to some, for long-term investors they are welcome measures to ease pressure on the market and put it on a more stable footing.

The establishment last year of the Real Estate Regulatory Authority (Rera) was also a major development as a centralized real estate regulatory body was created.      

As the Dubai government attempts to curb speculation, which many blame for skyrocketing property prices, it has cracked down on corruption. Highly publicized probes into alleged financial irregularities have made big headlines this year.

Developer Nakheel, builder of the palm-shaped islands, said last month a former employee was under investigation on suspicion of bribe-taking, while mortgage lender Tamweel's former chief executive and head of investments are under investigation.

Dubai developer Deyaar's former chief executive Zack Shahin resigned in April after being detained by police.

'In the last three years there has been a progression of new laws and regulations put in place...over the last 18 months especially there has been a real push,' said Alexis Waller, partner at law firm Clyde & Co in Dubai.

Investors, meanwhile, are clamoring for more regulation and transparency as the series of arrests in corruption probes shows no sign of letting up.

'The land department has information for all different transactions, with all transactions expected to be registered shortly, but this information should also be made more freely available to the public,' Kapadia said.

Source: Trade Arabia News

PO Box: 7553, Dubai, UAE
Tel: +971 4 331 3122 Fax +971 4 331 3126