AS NAKHEEL TRIES TO QUELL SPECULATION THE OFF-PLAN RESALE BAN IS IN THE SPOTLIGHT

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With many countries around the world experiencing a credit crunch, and families attempting to cut back on luxury spending in order to keep up with mortgage payments and find additional funds to pay for increased grocery shopping, there is a place where the word “credit crunch” appears to be a foreign issue. Of course, we’re talking about Dubai in general, but especially the emirates that make up the United Arab Emirates.

With what appears to be an endless influx of different nationalities entering the UAE to take advantage of the booming property market, the last thing you’ll ever hear in a place where filling up a 4×4 to the brim costs less than £25 ($40) is the two words that are gripping the rest “credit crunch.”

With rents at exorbitant levels, especially in dubai developments, owing mainly to a lack of supply in the market, government-backed and private developers are attempting to keep up with demand for new property in order to alleviate the supply shortage. When a development is finished, each property has a 30 percent chance of being leased out again, resulting in massive rent price inflation.

However, this is not the primary issue; the Dubai government is collaborating with developers to attempt to reduce “speculation” in the off-plan property market, which is causing substantial price increases in a short period of time. Buyer resales of Nakheel’s Trump International Hotel & Tower are now limited, and this could be extended to future Nakheel launches. In effect, investors were required to sign a purchase sale agreement prohibiting them from selling the property for a period of one year.

So a developer who tries to strike a balance between short and long-term investors is good for the economy, right? Probably not, because there is only so much constraint that can be imposed on investors, and in this case, the developer has simply reduced the goal posts, causing both short and long term investors (there is nothing particularly long about a Dubai investor trying to make a quick profit in this market) to sell their units at the same time, resulting in a larger property glut on the market. This impact will eventually lead to a drop in property prices, with some estimating a 10% drop in the best-case scenario.

A better choice is to look a little further out of town, to places like Ajman and even further out to Ras Al Khaimah, which, despite being relatively new, is undergoing massive expansion and development that will last for many years. Those looking to invest in this market, in particular, will almost certainly benefit greatly because prices are one-third of those in Dubai, and many people do not consider a 45-minute drive back to Dubai from, say, Ras Al Khaimah, to be a major issue.