3 Key Tasks to Fix supply and demand in Dubai real estate

New high-powered committee must exert all its influence to bring about change

The decision to establish a “Higher Real Estate Planning Committee” by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice-President and Prime Minister of UAE and Ruler of Dubai, has sparked a lively debate across the emirates about what the committee’s first steps should be. No one, however, is debating the need for this committee, which was established to find ways to strike a balance between real estate supply and demand, make sure launches of “me-too” projects are avoided, and ensure launched projects add real value to the national economy.

Two years of falling property prices caused by an oversupply of projects and completed homes has necessitated the need for some oversight from the government. The sector as a whole has welcomed the decision.

But regulating the market will not be easy. The end goal here cannot be simply to prop up property prices. To focus solely on that would create other problems, both in the construction industry and on local stock markets. The committee, whatever it decides, must move carefully and avoid causing excessive and unnecessary economic complications.

It will not be an easy task and will require both political will and an informed understanding of local market dynamics. Three key tasks have to be addressed through the committee.

1. Balancing of supply and demand: The oversupply must be reduced, a process that could take longer than many developers are prepared for. Obviously, projects cannot just be stopped, so a sustainable, long-term plan that merges growth with supply have to be created.
2. Allowing private developers to compete projects: Currently, government-backed developers dominate the market, and while they have provided stability and steady dividends to their investors, the market should be opened up in such a way that it allows private players also to thrive.
3. Examine the role of banks and the lending practices: These are factors that have helped drive the current imbalance in the market place. Low interest rates and a highly competitive banking sector have created an environment that caters not to families looking for a home, but also to investors looking to make profits by “flipping” properties.

The high rate of lending combined with the oversupply of properties has the potential to create problems that could easily spread to the banking sector. The committee faces a daunting challenge, but a challenge that must be addressed quickly to ensure Dubai’s continued economic growth.

(Originally Published by: Gulf News)