'Dubai property bubble fears exaggerated'

Fears of Dubai’s real estate market experiencing a bubble are “exaggerated”, Goldman Sachs Group said in a report on Monday.

“New regulations from the Dubai Land Department are aimed at curbing speculation, while new supply is helping keep values down,” the US-based investment bank said.

Property prices are 36 per cent below their 2008 peak even after rising by about a third from a low in the second quarter of 2011, bank analysts added.

Standard Chartered said in August that despite prices soaring, Dubai's property market was not heading towards another crash and the market was more sustainable, influenced by an improved economy rather than speculation.

Although the UK-based Knight Frank said property prices and rents in Dubai have risen at the fastest pace in the world, Jones Lang LaSalle reported last month that the rate of increase (price and rent) will slow down over the next 12 to 24 months.

The Dubai Land Department has already taken steps to discourage flipping in the market by increasing registration fees to four per cent from two per cent from October 6 with Director-General Sultan Butti bin Mejrin emphasising the move would not have any negative impact on the market.

In June, Emirates 24|7 reported developers have to give a 20 per cent construction guarantee and make 100 per cent land payment before launching any new project.

“No project in Dubai is launched without a construction guarantee,” Real Estate Regulatory Agency CEO Marwan bin Ghalita had told this website.

When we raised the issue on how developers selling off plan would complete their project, he said: “Those selling off plan have already put a 20 per cent guarantee as collateral and they are not being allowed to use money from the trust (escrow) account until 30 per cent of construction is reached.”

The UAE Central Bank’s new mortgage regulation is expected to be unveiled before year-end, which Goldman Sachs analysts believe will help cool the market.

Cash remained the king in Dubai’s realty market in the first half. Nearly 80 per cent of apartments were purchased by cash buyers.

Political stability and high rental yields continue to drive Dubai attractiveness to investors.

Rental yields, the bank said, are between 5 and 6 per cent compared to global range being between 2 and 3 per cent.

Earlier, Knight Frank said rising expatriate population had led to "good" rental returns for investors with net yields between four and six per cent.

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