The ferment in Dubai property prices has become alarming. A mechanism to limit speculation is needed.
Keep Dubai home prices from soaring away
How much is too much to pay for a townhouse that hasn't yet been built? How many housing units does a growing city need? How much money from other countries is cascading into the UAE's housing market?
These questions are reverberating along the high-rise canyons of Dubai this week, along with an even more pressing one: Can another property bubble be averted?
That haunting phrase "property bubble" still chills anyone who went through the collapse of the last one, when prices in Dubai crashed by over 50 per cent between 2008 and 2011, after a boisterous boom.
And yet the mistakes from the last bubble continue to rear their heads. Different price-measurement tools show that Dubai villa prices rose by 18 to 24 per cent in the past year. This time, unlike in 2008, investment money from countries nearby is adding fuel to the frenzy.
And there is evidence that the increase is fuelled by speculation, as in 2008, and not by healthy growth. As The National's Gregor Stuart Hunter reported yesterday, the rowdy crowd at Saturday's Emaar sale of 188 off-plan units at Arabian Ranches was not made up solely of people eager to live near Global Village. Many of the purchasers were speculators, paying cash, and some were offering their precious tokens - symbolising the opportunity to buy - on the classified website Dubizzle within hours, at markups reaching 30 per cent.
And on it goes: Tomorrow Emaar opens registration for another development, the 640-unit Burj Vista. Meanwhile the city's housing stock is increasing rapidly: the consultant Jones Lang Lasalle says 28,000 new units are coming onto the Dubai market this year. Projects that were mothballed in the crash are being revived.
There are ways to reduce the speculative fever that is inflating the market so quickly. Mortgage limits are not the answer, since so many purchases are for cash - an avatar of speculation - and mortgage holders are long-term buyers. But stiffly taxing profits on the resale of residential units, while exempting a home the owner has actually lived in for a year, would hit speculators without punishing others.
One way or another, the irrational enthusiasm must be wrung out of the property market, and soon. Soaring prices complicate life for ordinary people looking for housing, while they elevate the risk of further turbulence.