Can freehold property registration revive a slowing market?

The Dubai Land Department has one of the world's most sophisticated electronic land registers, and compiles accurate and open statistics for the market.

Until this month the official Dubai real estate market was only open to GCC nationals whose title was registered in the Dubai Land Department. Now the land registry is accepting registrations from non-GCC nationals, although this move has been widely anticipated and nobody buying a property in Dubai thought that they would ever face a problem.

However, this comes at a time when the first half real estate transaction figures from the Dubai Land Department have shown an 11 per cent fall in the total value of deals done to $2.7 billion, and a 40 per cent fall in the number of buyers to 1,253 this year.

Annual house prices up 12%

Officials blame rising real estate prices for the decline in transactions. And the Dubai Government's own real estate prices index, which tracks the per square foot value of transactions in 20 Dubai districts, is up by 12 per cent over the past year.

At the same time investors in off-plan properties report that it is impossible to sell at a premium on many developments, which was a major source of transactions even a year ago. Instead, off-plan buyers now have to wait until completion for any hope of realizing a profit on their investment or must sell at a loss.

But to have rising house prices while the market is slowing down looks much more like a soft landing than anything like a crash. Indeed, there are reasons to believe that a slowdown in the Dubai real estate sector will be an orderly affair.

No debt crisis

For one thing the Dubai real estate market has been largely driven by equity investment rather than debt. Property markets generally crash due to pyramids of debt which are vulnerable to price movements. In short, the banks call in their loans and crash the market.

It is rather different if you are say a Saudi institutional investor with a deep pocket. You can afford to sit and wait with an empty property until buyers come along. You might, of course, decide to discount units to sell them, and not to build any more but this is not likely to be a property crash of the kind seen in the West.

Besides high inflation levels in Dubai will protect the nominal values of Dubai property, and interest rates are still negative in real terms for those who have borrowed.

Having freehold registration open for foreigners is a nice sign that the Dubai realty sector is progressing as planned but may not do much to stop the slowdown in progress. However, it is another reason to believe that those expecting a market crash may be disappointed.