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rising real estate prices can never be an engine of growth
Hi Folks, just read this article and thought of sharing it with you. A thought just crossed my mind.... is Indian real estate going to move into a phase like this.....
DUBAI may soon be the town with the tallest building in the world, but it is also a place where hardworking people increasingly struggle to give their families a decent living. Wages have stayed essentially flat over the last three years, while rents easily doubled alongside inflation in other consumer goods which was not negligible either. This is not just a soft social topic that may concern charity organisations while high-level executives revel in their success stories on the commanding heights of the economy.
With rising school fees, expatriates are looking at the option of sending back their families and switching to a bachelor accommodation. There are justified worries that the runaway market in real estate and rents is stifling the very economy it is depending on. Some companies have already decided to move away, as costs were spiraling out of control. This is about to affect the economic success in other sectors in a very tangible way.
It is a simple truth that rising real estate prices can never be an engine of growth: What the seller wins, the buyer loses and the wealth in the economy stays essentially flat.
One can argue that Dubai has a constant influx from outside investors and that the name of the game is about selling dreams and real estate to foreigners, thus bringing profits for everybody involved as long as this demand from outside does not ebb. But in the emirate, the engine of growth, in the end, is elsewhere too: in trade, in services and in selected industries.
To be sustainable, rising real estate prices must be a symptom, not the cause of growth dynamics and a bigger number of people should be participating in the boom as stakeholders.
This is not the case anymore in Dubai. Only a minority reaps huge profits, while the majority is left out. Middle class families have been already priced out of the market, next in line are the young single professionals who want to have a foreign location in their CV and are lured to the city because they erroneously think $2,000 is a lot of money over here. When no dirham is left for things other than rent, individual spending sinks.
Institutions that could address such grievances and inform the tenants about their rights are so far underdeveloped. Many people do not know under which circumstances and how they can approach the often overburdened rent committee. Meanwhile, limiting rent hikes to 15 per cent is a step in the right direction, but too many landlords refuse to comply, tell the tenant to take a walk and laugh all the way to the bank. Even the 15 per cent hike means a hefty doubling within five years, and who expects wages to keep pace.
The threat of such a scenario, where unchecked market forces not only hurt consumers but the very market they rely on, delivers just another rationale for more government intervention in order to achieve balanced and sustainable growth. Beside the cap on rent increases and better enforcement of such regulations, the recent government programmes for low income housing are a case in point.
Thus, when it comes to rents, less price hikes and more regulation will be the key in the future.
- Khaleej Times
With rising school fees, expatriates are looking at the option of sending back their families and switching to a bachelor accommodation. There are justified worries that the runaway market in real estate and rents is stifling the very economy it is depending on. Some companies have already decided to move away, as costs were spiraling out of control. This is about to affect the economic success in other sectors in a very tangible way.
It is a simple truth that rising real estate prices can never be an engine of growth: What the seller wins, the buyer loses and the wealth in the economy stays essentially flat.
One can argue that Dubai has a constant influx from outside investors and that the name of the game is about selling dreams and real estate to foreigners, thus bringing profits for everybody involved as long as this demand from outside does not ebb. But in the emirate, the engine of growth, in the end, is elsewhere too: in trade, in services and in selected industries.
To be sustainable, rising real estate prices must be a symptom, not the cause of growth dynamics and a bigger number of people should be participating in the boom as stakeholders.
This is not the case anymore in Dubai. Only a minority reaps huge profits, while the majority is left out. Middle class families have been already priced out of the market, next in line are the young single professionals who want to have a foreign location in their CV and are lured to the city because they erroneously think $2,000 is a lot of money over here. When no dirham is left for things other than rent, individual spending sinks.
Institutions that could address such grievances and inform the tenants about their rights are so far underdeveloped. Many people do not know under which circumstances and how they can approach the often overburdened rent committee. Meanwhile, limiting rent hikes to 15 per cent is a step in the right direction, but too many landlords refuse to comply, tell the tenant to take a walk and laugh all the way to the bank. Even the 15 per cent hike means a hefty doubling within five years, and who expects wages to keep pace.
The threat of such a scenario, where unchecked market forces not only hurt consumers but the very market they rely on, delivers just another rationale for more government intervention in order to achieve balanced and sustainable growth. Beside the cap on rent increases and better enforcement of such regulations, the recent government programmes for low income housing are a case in point.
Thus, when it comes to rents, less price hikes and more regulation will be the key in the future.
- Khaleej Times
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