Dubai plans new rules to control speculation on properties sold before they are built after home prices climbed by more than 30 per cent last year, the head of the emirate’s Land Department said.

Dubai planning rules to curb property speculation!

Dubai plans new rules to control speculation on properties sold before they are built after home prices climbed by more than 30 per cent last year, the head of the emirate’s Land Department said.

The real estate authority plans to complete a review of what are known as off-plan transactions in the first quarter and may introduce new regulations in the second or third quarter, the Land Department General Director Sultan bin Mejren said. Home prices this year may rise 35 per cent to 40 per cent, he said.

“Transactions on off-plan properties are a little dangerous,” he said on Monday. “We are now studying them and looking at ways to ensure that they don’t hurt the market.”

As Dubai’s economy and property market revive, regulators and companies are trying to avoid a repeat of a bubble that burst in 2008 and caused values to fall by as much as 65 per cent. The buying and selling of off-plan properties for a quick profit, known as flipping, was seen as a major cause of the crash.

Off-plan sales made a comeback last year after drying up following the market’s collapse. This is helping builders finance projects while sparking concern that speculation is returning. Emaar Properties, Dubai’s biggest developer, banned the resale of incomplete properties before 40 per cent of the home’s total value is paid. The move was made to minimise the effect of speculation, the company said.

The Land Department is also planning regulations to limit rent increases when tenants change, Mr Mejren said. While there are caps on increases for existing occupiers, Dubai currently has no controls on increases for new tenants.

“We are studying laws for residential and commercial properties and each will have its own guidelines,” he said. “We expect to have them prepared in either June or the third quarter. There has to be some regulation for new contracts in order to have stable rental increases.”

The Land Department last week said it was updating its rental price index, which determines caps on increases depending on the type and location of the property. The changes come as Dubai stands “on the cusp of a new boom in real estate” after it won the bid to host the World Expo 2020 exhibition in November, the department said.

Dubai’s economy may have had the fastest expansion in six years in 2013 after output grew 4.9 per cent in the first half. Prices for mid-range apartments in the city rose 43 per cent last year after climbing 18 per cent in 2012, according to Cluttons data on Bloomberg.

The Dubai Financial Market Real Estate and Construction Index more than doubled last year after gaining 43 per cent in 2012. It has climbed 0.2 per cent this year.

Regulators last year moved to cool the market after home prices rose at the fastest pace in the world in the second quarter. The Land Department raised the transaction fee to 4 per cent from 2 per cent and the Central Bank imposed restrictions on the value of mortgages made available to foreign buyers. Between 35 per cent and 40 per cent of all property sales in the emirate are mortgage based, Mr Mejren said.

Dubai also established a centre to settle rent disputes that will more than double the number of cases that can be reviewed. Rents for mid-range two-bedroom apartments rose 38 per cent last year compared with a 10 per cent gain in 2012, according the Cluttons data.

“Don’t look at buying property as though you’re buying shares on the stock market,” Mr Mejren said. “If you buy a property here, hold on to it, because by 2020 the city will be entirely different from what it’s today.”

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