The answer to Dubai's real estate woes lies in improving freehold visas, insiders say, and they think hope is on the way, ZARINA KHAN reports.
With no immediate abatement to the stagnant and even gloomy forecasts for Dubai's real estate sector, experts say the time has come for the emirate to consider improving freehold property visa provisions.
"We believe a key issue is the residency visa situation. We would suggest that in order to attract more international investment, it would be preferable to have a longer visa. This will allow for more security in the market," said Steve Morgan, head of Cluttons Dubai and Abu Dhabi, while commenting on staid market predictions.
Since late 2008, when the global recession sapped liquidity from the economy, the Gulf's former boomtown has seen a steady deflation in its former blue-chip sector of real estate, which was noted in Clutton's Dubai property market overview, Quarter Four 2009. Regarding performance in 2010, Cluttons found that the average residential rent prices in Dubai declined over five per cent in the first quarter of the year.
Since the recession kicked off, there has not been much new interest in the Dubai residential real estate market from non-resident investors. Analysts say most of the movement recorded in Dubai property in early 2010 and late 2009 was mainly in the form of existing UAE residents taking advantage of relatively low prices to shift from renting to owning. The fall seen in residential unit pricing - in some developments as high as 50 per cent - had also attracted not only Dubai residents who had been renting, but also those who had been residing in the more affordable neighbouring emirates. But that shift-based growth is not sustainable. The available supply of UAE residents with money to buy may not be sufficient to keep the market afloat.
And as yet, there have not been significant signs of improvement to hint that the rest of the year will be any better. In fact, Clutton says Dubai's residential market has yet to reach its bottom. The local real estate research firm is not alone in that assessment. A Reuters poll found that most analysts believed that Dubai house prices and rents would fall 10 per cent more in 2010 and not recover until 2012.
But changing the freehold property visa situation may reinvigorate the market. Currently in the UAE, foreigners are barred from purchasing and owning land, save for those in specially zoned 'freehold' developments. Originally the law stated that, upon purchase, freehold properties provide the foreign owner with a six-month renewable visa. However, there have been ongoning changes in the law that have left uncertainties.
While last year there was some progress made on the issue, with an amendment to article 33 of the property law allowing only those foreigners whose property in Dubai was valued at Dhs1 million ($272,242) or more to be issued a six-month renewable residence visa - real estate analysts say it is not enough. They suggest that lengthening the visa term may draw more moneyed foreigners looking for a secure and comfortable place to call home.
Mohammed Nimer, chief executive officer of MAG Group Property Development, is another expert in favour of relaxing Dubai's freehold visa restrictions. Nimer, speaking at the Infrastructure and Property Development MEA Summit, explained that the relaxation of visa rules was a federal issue in the UAE but it needed to be consistent and investor friendly. "Malaysia and Thailand lead emerging markets in encouraging international property buyers and as such this country could learn from them," he told attendees of the summit.
Though no developments in regulation have been announced in the recent past, it is reported that changes are afoot. A report in local media in January quoted Dubai Land Department sources as saying six pieces of legislation were being looked at this year.
"We definitely need some further regulation and I feel like we're on the verge of that regulation being put into place," Morgan added.
© Gulf Business 2010
