Several analysts have warned that high speed speculation in the market will ultimately lead to boom and bust as prices are being inflated by short-term buyers who are selling on their off-plan properties even before the first instalment is due with the sole intention of making a quick profit.
Banking giant Standard Chartered said the Dubai government should take immediate action to stop the practice after Colliers International reported that property prices in Dubai rose 42% in the first three months of 2008, well beyond Standard Chartered's forecast of 15% for the whole of 2008.
Already developers are looking for ways to ease the situation but at the same time not put off investors. Nakheel has decided to restrict buyers at the Trump International Hotel & Tower on Palm Jumeirah. They will have to wait a year before they can sell their apartments on the secondary market, a spokesman said.
Emaar, which is building the Burj Dubai, is also one of the developers restricting secondary sales of its properties until buyers have paid 30% of the cost.
Other developers are setting up transfer fees that give buyers incentives to hold onto their apartments for longer.
Union Properties, the developer behind MotorCity and UP Tower, now requires buyers to pay 20% of the property value before reselling. In some cases, the company is implementing a transfer fee of up to 10% to cut back on speculative buyers.
Zaid Ghoul, the chief financial officer of Union Properties, said the market was undergoing changes to curb speculation with new regulations coming in. 'The mechanism of transfer fees will change with the new laws and regulations coming into effect to deal with this area. Changing the payment schedule is not a common practice, but could happen based on market conditions,' he added.
But Standard Chartered is adamant that individual developers alone cannot curb speculation. Marios Maratheftis, regional head of research at Standard Chartered has suggested that the government should impose a capital gains tax of at least 50% on profits from properties bought and sold within 12 months.
