Property registration fees have doubled in Dubai, sufferer of one of the worst property crashes in recent memory, in an effort to limit further speculation and steer clear of another possible housing bubble. With Dubai home prices having increased by 21.7% in the second quarter alone, according to Knight Frank, red flags have gone up over a possible bubble forming. The International Monetary Fund (IMF) issued a similar warning regarding Dubai property market in July.
Effective October 6, as announced by Director General of the Dubai Land Department Sultan bin Mejren, the transaction fee will double from 2% to 4%. This will be enforced on residential and commercial properties, including properties that have been sold before being completed. The increase is not retroactive and does not include the industrial real estate market. Digvijay Singh, an analyst with VTB Capital, noted that the increase “may negatively impact property sentiment and demand for the next three to six months.” He also added that, “it’s the prudent thing to do because the more stable Dubai’s fiscal situation is, the better the long-term prospects for property values.”
The revised fee is unlikely to stem the rate at which home prices are increasing according to Knight Frank. They added that relative to global standards, prices are still relatively inexpensive. Dubai’s government, which is sitting on an estimated debt of USD 25.6 billion, will benefit from this added revenue stream. Simon Williams, the chief Middle East economist at HSBC is not convinced of this move by itself, saying “The additional property fees are a first step, but they are not enough on their own. I’m looking to see what other measures Dubai and the UAE will take to guard against a repeat of the boom-and-bust cycle.”
It is an encouraging sign to see that the housing market in Dubai is back on its feet only 4 years after the bubble burst. Even more encouraging is that the government is implementing strategies to avoid a repeat of those events. While increased fees are rarely good for consumers, one can only hope the government continues to seek new ways to safeguard the housing market to protect the economy as a whole.