x Abu Dhabi, UAESunday 21 January 2018

The UAE’s next property boom should be built on a solid base

With or without Expo 2020, Dubai is well-positioned to boom again. But this time there must be no property bubble.

Over the last few weeks, a slew of news reports about rising property prices have led to speculation about whether the country is, once again, about to see what has been called a residential property bubble.

Memories of the 2008 collapse in property prices, after years of substantial increases, are still fresh. And, for many, it’s not just a matter of memories. The financial wounds are still there, too.

The concerns are particularly about Dubai; in the capital, price increases have been noticeably lower.

It was reassuring, then, to hear last week the view of the governor of the Central Bank. “I think there is no possibility of a new bubble in the real estate sector,” Sultan Al Suwaidi said.

He cited two reasons. The first is the experience gained by the banks during the period 2006-2008, when many overextended themselves in making loans for property, and suffered from the inability of borrowers to repay their loans.

The second reason is the rules newly introduced by the Central Bank, capping loans to first-time buyers at 80 per cent for Emiratis and 75 per cent for expatriates.

However, around 70 per cent of home purchases last year are said to have been made in cash. So one wonders how effective the mortgage cap will be. It would be useful – perhaps illuminating – to have some figures on how many of those cash purchases were made by non-residents, parking their cash in the UAE’s stable environment. As in the fields of tourism, inward flight bookings and hotel occupancy rates, the UAE’s property-market has benefited from turmoil in the region.

That said, however, it’s clear that some of the excitement in the Dubai property market, at least in locations with better infrastructure, has been stimulated by hopes that the city will be selected as host for the world Expo 2020.

One architect told me the other day that he knew of another practice that had completed designs for 11 new hotels. All are ready to be launched, and will be if the Expo 2020 bid is successful.

Winning Expo 2020 would certainly provide a major boost to the local property and construction industries, one that may be more soundly-based than the last boom was.

As an aside, I hope very much that Dubai will be selected for Expo 2020. It offers so much more than its competitor cities – Yekaterinburg in Russia, Izmir in Turkey, and Sao Paulo in Brazil. I believe Dubai should win hands down when the decision is made on November 27, provided the choice is made on a level playing field.

Back to the issue of whether, as the Central Bank governor suggests, the banks have fully learnt the lessons of a few years ago. They may have reduced their exposure to the property market by cutting back on loans, but there are plenty of signs that some of them, at least, are very actively promoting their credit cards once again.

That raises the prospect of new potential debt problems. Symptoms include mall kiosks inviting passers-by to play a simple roll-the-ball game to determine the size of their inducement to take up a credit card, leaflets on car windscreens and of course the irritating practice of cold-calling those considered to be potential customers.

I received one such call myself the other day, on a private line, but with an unusual twist. The caller introduced himself as the bank’s “relationship officer” for my company account, and asked to talk to the human resources or finance department. In fact, I don’t have a company or a company account, and have never held an account with the bank in question. I didn’t tell him that, to see where the conversation would lead. It turned out that he wanted to persuade me to shift my payroll to his bank, so that, once it handled the accounts of my employees, it could target them for credit cards – on favourable terms, of course.

The approach was irregular, I thought, though I’m not suggesting that the bank concerned would ever engage in fraudulent banking practices. However, the call left a bad taste in my mouth.

It prompted this thought: as the economy continues to pick up, are the banks, once again, trying to induce people to take on credit cards and loans that many may be unable to repay? We’ve been there before, haven’t we? Have the banks really learnt all of the relevant lessons from the last boom-and-bust?

Peter Hellyer is a consultant specialising in the UAE’s history and culture