A Major Step To Help Regulate The Markets

The UAE Federal Government's decision to allow short-term, multiple-entry visas to foreign owners of properties could be seen as a first major step towards regulating the sector - which has led the country's economic growth over the last five years. UAE Interior Minister Lieutenant General Shaikh Saif Bin Zayed Al Nahyan on Saturday informed the press of the decision which is aimed at enhancing the country's economic growth and prosperity. The six-month visa is yet to be formally named and is valid only for properties worth at least Dh1 million ($267,000) and for those owners earning more than Dh10,000 per month - a fact that is to be verified by the visa issuing authorities - immigration and naturalisation departments of each emirate. The move comes at a time when investor confidence in the market remains relatively low. Property developers say it will help boost the market and help it grow in the long run. Not only it will help the market stabilise by reviving investor confidence and help the real estate market to recover earlier than expected, this move we see as a first step among many more to come," Wazir Ali Daredia, managing director of Trident International Holdings, says. Mohammad Nimer, CEO of MAG Group's property development arm, says, "A six-month validity is too short. I hope they increase it to a year so that buyers feel more comfortable.

This is the federal government's first direct positive intervention in terms of providing a legal stimulus to real estate, which otherwise is supposed to be regulated by each emirate as per their local laws. The move also signals that the government is serious in addressing issues faced by the industry and offering a set of unified federal guidelines that will help all the emirates to be on the same page in implementing best practices. As per the UAE constitution, land belongs to the emirates and each Ruler determines its usage and ownership laws. However, the laws regulating the issuance of visas remains with the federal government - a gap not well understood by foreigners and thus needed to be addressed. Although property ownership and visas linked to real estate are two separate issues and property ownership usually does not guarantee visas as a matter of practice worldwide, Dubai's master developers have since then been facilitating residence visas through an arrangement with the Dubai Naturalisation and Residency Department (DNRD) - a process that was stopped last year. The growth in the UAE's real estate has largely been driven by Dubai, which is the first emirate to open its land and property sectors to foreign ownership on freehold basis in 2002 - a landmark decision, something almost unthinkable at that time.

However, the decision was a strategic move by the government to attract part of the $800 billion to $1 trillion Arab capital repatriated from the Western markets following September 11 as part of Dubai's vision to create a diversified and sustainable economy for a world-class destination. In the absence of adequate investment vehicles and windows, owners and fund managers of this huge pool of resources were looking for opportunities. Dubai's decision to open real estate created this necessary opportunity. In 2002 when the government announced freehold ownership to foreigners, Emaar Properties was the only major developer in the UAE which had the organisational strength and capabilities to execute such a mass-scale projects. Later, the government created Nakheel, Dubai Properties, Sama Dubai and Limitless and grouped them under two holding companies. With the government mandate, these organisations then began massive development projects that collectively created the New Dubai which is larger than the downtown Dubai.

Over the last six years investors and developers have been racing against time to build and develop large neighbourhoods and communities, such as the International City, Dubai Marina, Jumeirah Lake Towers, Discovery Gardens, Emirates Lakes, Emirates Hills, Arabian Ranches, Uptown Mirdiff, the Palm Jumeirah, the Greens, the Green Community, to name a few. The move helped create hundreds of thousands of jobs, generate wealth as the economy witnessed a double-digit growth year on year. More than 40,000 families have already moved to their freehold homes so far while thousands of others are waiting to get their properties delivered in the coming months. However, all this happened in the absence of a proper set of laws and guidelines. With the abundance of easy liquidity and speculative money driving the boom, most industry professionals were busy generating wealth or cashing in on them. A demand-supply mismatch pushed inflation to a record high, which was reflected in rents - jumping by 40-80 per cent year on year - prompting the government to apply brakes, in the form of rent caps. The Dubai Government in 2006 issued the Property Registration Law legalising the foreign freehold ownership of properties, and subsequently created a regulator to formulate bylaws and look into disputes as customer complaints about deliveries, delays, quality of properties and services began to give the industry a bad name.

As Dubai's real estate was growing at a rapid pace, the rest of the country also joined the bandwagon, starting with Ras Al Khaimah, Abu Dhabi, Umm Al Quwain and Ajman. However, none other than Dubai has put a regulatory regime in place. Ajman has just created its own regulator while Abu Dhabi is finalising the laws. The latest visa rule could be a new beginning in reshaping the country's real estate sector that needed unified guidelines, codes of ethics and gradually lift it up to the level of international best practice, if the government wants the end-users to return to the market. However, in addition to this, strengthening of the regulatory regime that will help promote best practices needed to be ensured so that the end-users and investors do not suffer, in order to attract them to invest in the real estate market.