One leading estate agency says 85% of off-plan apartment sales and 50% of villa sales in Dubai are to speculators who have no intention of becoming the final owners when the property is completed. Is this a healthy development?
The Dubai property market is booming with headline sales of thousands of units in one day. But caveat emptor, that means thousands of deposits. Most of the 'buyers' are looking to sell their deposit at a profit in the re-sale market.
This is rather like buying shares in a stock market IPO which you then sell on Day One of trading for a quick profit. And so long as the deposit can be re-sold at a premium this is a fair way to make a fast return on capital.
But this is speculation. You take the risk that the market will change direction, and that you will not be able to re-sell at a profit.
It stands to reason that so long as there are more buyers than properties on sale, then speculators will make a profit. The problem comes as the supply of property increases and the number of final buyers - or speculators looking to buy and sell again - starts to fall.
There are signs that the Dubai property market may be entering this phase. Certainly many recent off-plan buyers have found it more difficult to find buyers, and some have accepted a zero premium.
Emaar Properties is also trying to squeeze out the speculators by limiting the number of properties one person can buy, raising the size of the deposit and only allowing a limited number of property transfers. After all, it would not be in the developer's interest if the person they thought was buying a property failed to come up with the final cash.
Before long this speculative surge will surely overreach itself, and probably the sooner the better as it could lead to a disorderly property market.
Then most agents expect Dubai property to become a stable store of value and rental income, as it has traditionally been. They note that with unlimited land available at nil-cost in the desert the scope for spectacular price increases, like those seen in Hong Kong or London, is absent.
However, it is to be expected that the vagaries of the local Dubai economy will produce ups and downs in property prices just like anywhere else. But with rental yields slipping at the moment, certain agents argue that price trends are likely to flatten in the short term.
The real test will come in two to three years' time when the many apartment towers now under construction are completed. Then the market will have to absorb a lot of new property at one time.