The Government of Abu Dhabi has this week clarified the legal posi tion regarding property ownership for nonGCC citizens.
The emirate's property laws now clearly stipulate that nonGCC foreigners cannot own freehold land, but GCC citizens can, provided the land is within a designated investment area. Long leases will be the only option available for non-GCC nationals as they will not be able to own land on which property is built.
This has prompted some analysts to speculate that nonnational investors could feel that they are getting an inferior property title in Abu Dhabi compared to neighbouring Dubai where clarification over the property law for multiple occupancy buildings is also keenly awaited.
The Dubai system offers freehold to owners of all nationalities, but in the case of high-rise and multiple occupancy buildings, exactly what that means in terms of legal title has yet to be fully defined.
Non-national freehold villa owners in Dubai will have an argument to a superior title over those holding long-term leases on villas in Abu Dhabi. But whether this will make much difference in practice to buying patterns is uncertain.
Comparable titles?
Andrew Chambers, managing director of property management company Asteco, does not believe the difference will alter the buying habits of individuals investors.
He said: "I think a 99-year lease is as good as a freehold in most people's books, so I don't think that will affect people's decision to invest necessarily. When you think about it, most of London is leasehold and the property market there is booming.
"With some of the big international funds we still see a bit of resistance to long term leases, so it may matter to them when it comes to investing in Abu Dhabi real estate.
"The new amendments have only enshrined in stone what we already understood."
Investment zones
The Abu Dhabi Executive Council has already designated several sites in the UAE capital, which are being developed by Sorouh Real Estate and Aldar Properties, as investment zones where these buying rights are applicable.
So how do the real estate markets of the UAE's largest cities compare today?
The major property boom in Dubai occurred in May 2002, when a decree was issued to allow foreigners to buy and own freehold property in selected areas of the city.The same month also witnessed the announcement of Nakheel's man-made island, The Palm Jumeirah, which was followed a year later by the second palm-shaped island, The Palm Jebel Ali.
All previously developed leasehold property was then automatically transferred to freehold.
After the initial property boom, various new developers joined the market, most notably Damac Properties, Dubai Properties (Estithmaar Realty Fz), and ETA Star Properties.
According to some experts, the more intelligent investors who missed out on the Dubai real estate boom have now shifted their attention to Abu Dhabi. For the UAE capital has embarked on a similar expansion of its real estate sector, albeit at a slower pace.
Emerging market
Abu Dhabi's property law came into effect in August 2005, when the government announced the permitting of 99-year land ownership and renewable 50-year surface ownership to foreigners in specified areas.
From a standing start, the emirate of Abu Dhabi now has more than $100 billion (Dh367bn) of real estate projects in hand, including the $40bn (Dh146bn) Yas Island, $27bn (Dh99bn) Saadiyat Island, $15bn (Dh55bn) Al Raha Beach, $9bn (Dh33bn) Danet Abu Dhabi, $8bn (Dh29bn) Najmat Abu Dhabi, $3bn (Dh11bn) Shams Abu Dhabi and $2bn (Dh7.3bn) Capital Centre.
Middle East real estate investment advisor RSP Group estimates that 250,000 new housing units will be required in the UAE capital to accommodate a doubling of the local population to two million over the next decade.
According to Chambers, house prices in the capital have been quick to catch up with those in Dubai.
"Abu Dhabi is now starting to catch up quickly with Dubai in terms of real estate investment opportunities," he added. "Three years ago, it really did not have a lot in the pipeline, and there was not much for the savvy investor unless you were buying big tracts of land.
"But now there are several major developments there, including mixed-use hotels and leisure islands.
"Pricing is very similar now between Abu Dhabi and Dubai - Abu Dhabi has moved quite quickly to the same level. You are now looking at about Dh900 to Dh1,200 per square foot for residential property to buy in both emirates.
"Like-for-like products are very similar in Abu Dhabi and Dubai, but there is not as much available in Abu Dhabi. Rental prices in Abu Dhabi are higher because of the absolute shortage of units to buy there to live in." Analysts have noted that, in particular, major international property investment institutions have been showing great interest in the UAE capital. It could be that the economic and political stability of oil-rich Abu Dhabi is proving more attractive to them than the more volatile commercial economic cycle of Dubai.
Sustainable development
Viewed in this context, the imposition of a seven per cent rent cap by the Abu Dhabi Government might well be seen as another example of prudent government.
By restricting speculative gains available to investors, Abu Dhabi will ensure that upswings are less spectacular than in some markets, but equally protect against any dramatic downturns.
Most long term investors appreciate government interference if it reduces volatility while allowing asset prices to continue to appreciate.
So, many believe it is possible that while rental prices are kept down, property prices could still take off in a fairly dramatic fashion, particularly if investors perceive the market risk as low and are therefore happy to accept lower rental yields.
Indeed, it could be that Abu Dhabi rental yields quite quickly adjust to global levels which would still allow some spectacular capital gains.
So investors should not be put off by rent control in Abu Dhabi, for the rents are already very high by world standards, and a reversion to global rental yields would assure a handsome capital gain.
The most recent Gulf State to join the wave of property ownership reform, Abu Dhabi is both uniquely well advantaged and determined to move ahead in 2007.
There will be the first sales of off-plan apartments to foreigners on 99-year renewable leases, and the mobilisation of huge construction sites.
But this is also going to be a year of considerable challenges for the sector, which is somewhat late to market.
Market pitfalls
The main danger, according to analysts, is that market conditions will change, which might mean a softening of oil prices, or a downturn in the neighbouring Dubai market where Abu Dhabi investors have been very active.
Abu Dhabi's vast wealth is unusual in the world of property development where high leverage, big risks and big gains for the astute or lucky are the name of the game.
Many believe it is this environment that makes Abu Dhabi attractive to global property funds that prize security of asset values over making a fast buck.
According to an article on AME Info, the Abu Dhabi real estate market is undergoing a fundamental change even bigger than in Dubai.
According to the article,"this is the start of a completely new property market in the city with the world's highest per capita income.
By Anthony Richardssn
© Emirates Today 2007
