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The Dubai government has dealt a blow to its burgeoning real estate market by doubling its property transfer fee.
Until now the Dubai Land Department has imposed a transfer fee or tax of 2% of the value of any property for it to be transferred from one party to another.
Under the Dubai Government decree the fee will be doubled to 4%.
The move has come with little warning, and it would appear without consultation with industry players such as the emirate’s key property developers, many of them partially owned by the government, banks and other lenders, and real estate brokers.
The public has also had no input into the decision, the government has simply announced a decree.
The measure will dampen property speculation however it will also diminish the capacity of genuine end-users to enter the property market. As a result it is likely to spur rental levels.
The Dubai government is believed to have been concerned at the enthusiasm of buyers which has pushed up property prices. Regulators were believed to have been looking at means to cool the market. Much of the speculation however has been in off-the-plan sales which have mushroomed this year. The government previously imposed a regulation requiring developers to only charge an upfront deposit of around 10% and then to charge buyers a percentage of the development as construction milestones were achieved. However partially owned or affiliated government developers such as Dubai Properties, Nakheel and Emaar have blatantly disregarded the regulation and imposed partial payments in certain timeframes. RERA, the Dubai government regulator appears to have turned a ‘blind eye’ to the practise.
Property buyers and sellers have had no notice of the new ruling on transfers as the idea has only surfaced in recent days. The government’s concern about a potential bubble is based on past experience when in 2008/9 prices of apartments and villas, and particularly commercial property in Dubai plunged as the Global Financial Crisis hit. Developers and government entities reined in their borrowing and some debt had to be restructured. Only recently has the Dubai government been able to borrow in the bond market at current market levels.