There seems to be something of a sea change occurring in the Dubai where the Dubai authorities have clamped down on a number of older laws and regulations and are hitting Westerners like never before. During the early boom times the authorities in Dubai seemed happy enough to overlook a number of Western activities which were at odds with the local culture and local practices although there seems to be a change in stance occurring and one which will have a material impact upon foreign nationals living in the area.
So what is happening today?
The latest local law to be upheld, with extreme penalties for those who do not abide by it, is the matter of house sharing. The authorities have enacted a major crackdown on this particular activity with tenants facing fines of up to $13,600 and owners of shared properties facing potential fines of twice as much. The authorities in Dubai have always viewed such activities as a potential “security risk and health hazard” however up until recent times they have been willing to overlook this in the case of many Western couples and friends sharing homes.
The decision to uphold this ancient law was taken by the highest rulers in the land and has been passed on to the housing chief inspector at the Dubai Municipality.
How determined are the authorities to carry out their threats?
This move by the Dubai authorities could have serious consequences for many in the region and the fact that those “violating the law” are given deadlines to make alternative arrangements is no empty threat. The officials in Dubai have gone as far as cutting off water supplies and electricity as well as hitting tenants and property owners with substantial fines detailed above.
There are serious concerns amongst foreign nationals that this is the first stage in a major clampdown on various activities which until now have been largely overlooked by the local authority. Quite where this will all end remains to be seen but it may be no coincidence that a recent court case involving two Westerners accused of “inappropriate activity” hit the worldwide media and attracted differing views from many areas of the world.
Why are the Dubai authorities clamping down now?
One of the more mysterious elements of this sudden change in local policing seems to be the reason for choosing now to clamp down upon activities which have been ongoing for some time. There are some differing opinions with some suggesting that Westerners have been flouting local cultural differences to a greater extent of late with many seeming to believe they were above the laws of the land. However, some others believe that the massive profits which Western investors have made in the property market and business arena of Dubai has prompted the authorities to attempt to “bring foreign nationals back into line”.
Alternatively there is a growing feeling that the Dubai authorities are looking to pick and choose the residents of Dubai on wealth alone which they believe will insulate the local economy from further economic turmoil in the future.
Has the economic slowdown prompted this change in policy?
As many analysts continue to forecast a serious downturn in the Dubai property market over the next two years there is growing concern about demand for property in the region and the potential downside for developers and investors. If the authorities are looking to force people to acquire or rent their own properties this could seriously backfire because while there is sufficient property on the market to fulfil potential demand there are many inhabitants of Dubai who would have to consider moving away from the region if evicted from their current properties.
Even though the Dubai authorities have already restricted rental increases to no more than 15% per annum many people still believe that rents are unreasonable and looking forward many people will struggle if the local economy continues to slow. There have been instances of tenants spending upwards of 50% of their monthly income on rent alone which is something that cannot continue in the longer term. Those who moved to Dubai to benefit from the property, business and tourism sectors will no doubt be the first to suffer if as expected the economy continues to slow in line with the worldwide economy.
The outlook for the Dubai property market
When you consider that more than 80% of the Dubai population is foreign nationals (something in the region of 1.2 million people) the state’s dependence on overseas investors and overseas visitors is evident. So quite why the authorities are looking to hit the foreign national side of the property market is something of a mystery as they very much depend on this area of the population.
The Dubai property market has already shown weakness over the last few months and one of the main problems seems to have been the fact that many investors and leaders in the region refused to believe it would eventually succumb to the worldwide economic slowdown. Even though the authorities have recently taken action regarding secondary mortgages, effectively freezing them due to the potential liquidity crisis, many believe that this was too little too late.
As new ventures in Dubai continue to appear on a regular basis, with the overcapacity in the region more evident than ever before, many of these ventures are unlikely to reach their ultimate conclusion. The longer the worldwide economic slowdown continues the less investment Dubai will attract from overseas investors which will in turn lead to falling prices, struggling developers and has the potential to induce a serious downturn over the next two years.
While the Dubai property market has been one of the great success stories of the last 10 years many people had forecast a conflict between East and West cultures in due course and this appears to be playing out in front of our very eyes at the moment. Whether the Dubai authorities believe the state is now ready to convert into a region solely for the rich and famous remains to be seen but if this is the future trend in the region it is a very difficult and risky strategy to take on.