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Recovery in sight
Muzaffar Rizvi / 14 August 2011
The real estate industry in Dubai is showing signs of recovery following the change in visa rules for property investors. The emirate, with its strategic location, has become a centre of focus as regional and international investors show their interest to relocate their corporate offices in the wake of unrest in the region.
The emirate, an ideal gateway between Europe, Asia and Africa, offers great opportunities to investors looking for investment. As the UAE is promoting its position as a stable market place for international investment, the real estate industry in Dubai is expected to benefit most from the growing attention from both East and West.
With projects worth $689 billion in the planning and design stage within the GCC alone, the UAE represents more than 20 per cent of that figure majority of which are being developed in Dubai — the region’s business hub.
According to media reports, property transactions in Dubai totalled around Dh30 billion in the first half of this year, including Dh16 billion worth of apartments, Dh12 billion land property and the rest in buildings. The GCC investors pumped nearly Dh6.8 billion into Dubai’s real estate sector, accounting for almost a quarter of the total property deals in the emirate. The market players attributed the growing interest of regional investors in Dubai’s real estate industry to recent change in visa rules and the UAE’s safe haven status in the wake of unrest in the region.
Market analysts said the recent announcement of visa law is a positive and confidence-building measure that will help restore investor trust in the real estate industry that is executing projects worth over $150 billion in the country. However, they also stress the need to address the transparency issues as well as introduction of more innovative steps to revive the industry.
The market players and stakeholders said the timely announcement of the government ahead of the region’s premier property show — Cityscape Global in September — will boost the demand from overseas and regional investors in the wake of ongoing unrest in the region. According to them, international and regional investors show interest in the Dubai real estate industry and they will closely watch the region’s mega property event next month.
“The focus of the UAE government to further strengthen the real estate investment environment in the country and the nation’s reputation as one of the most competitive and stable economies have energised the property sector,” Ahmad Al Matrooshi, Managing Director — UAE, Emaar Properties, said in a recent statement to Khaleej Times.
Emaar Properties, the renowned global property developer, has extended its expertise internationally, with a significant presence in fast-growing overseas markets in addition to having pioneered integrated lifestyle neighbourhoods in Dubai, which are now fully established. The company will be showcasing its diverse portfolio of lifestyle projects in Dubai as well as in key international markets at Cityscape Global 2011.
“A recent report from CBRE positioned Dubai in the top 10 global business destinations, with more than 60 per cent of multi-national organisations already having a base in the emirate. We have a positive outlook for the market in Dubai and see great opportunities in the mid to long-term, as its strategic location makes it an ideal gateway between Europe, Asia and Africa,” Chris Speller, group director, Cityscape, told Khaleej Times.
“Cityscape Global supports Dubai in a much broader sense, however, highlighting the emirate’s position as a leading international business hub and attracting corporate end users to the event looking for investment and leasing opportunities.”
Visa rules change
Jitendra Gianchandani, chairman and managing partner of Jitendra Consulting Group, said new visa rule for property investors is good news and it shows that Dubai government in particular cares about the investors and their image.
He said investors, business community and real estate people are excited about new visa rules. He said international buyers are delighted and have shown confidence in UAE government and property investment in Dubai. But still official announcement of rules and regulation is pending.
“We expect that foreign direct investment in real estate will significantly improve from neighbouring countries due to unrest in their own countries and confidence in the UAE as a serious and genuine destination for the foreign investment will improved. Apart from neighbouring countries, local residents who had held their decision due to high prices before the crisis and now due to visa issue, they will also start investment in the properties.”
Jesse Downs, director, Jones Lang LaSalle MENA, said the recent announcement of the three-year visa provided to property owners is definitely positive and will generally support the rebuilding of market confidence. However, this is just one step on the road to recovery.
“Transparency remains one of the largest challenges in the property markets. Without it, the perceived risk premium is high, which discourages investment or, in the least, it increases the yield threshold,” she said.
Vineet Kumar, head of business development - Dubai, Asteco Property Management, echoed the same views. He said the recently announced visa news will undoubtedly encourage confidence in the property market for all the emirates. However, clarifications and details of the law are required to ensure transparency in the market.
“We see that the minimum property value of Dh1 million for properties in the UAE could be challenging for some buyers as prices have dropped considerably over the past few years. Furthermore, details on how the visa will be issued have yet to be clarified. This new law will definitely instill more confidence in the market, we are looking forward to hearing future announcements and believe this announcement will lead to more interest in the property sector.”
Chris Speller said the announcement by the UAE federal government to extend visa for real estate investors from six months to three years is positive news for the real estate industry. “The announcement comes at the right time as it will take away much uncertainty for investors. Market analysts generally are expecting an increase in demand from overseas as well as resident investors as a result of this announcement.”
He said the three-year visa will add to the UAE’s reputation of a stable place to invest and do business in the Middle East, which was already reaffirmed throughout the Arab Spring in the first half of this year. As a result of that, there has also been an increase in inquiries from corporate end users looking to locate their business to the UAE and Dubai in particular.
“Many Indian investors are considering Dubai as prices in their home country in cities like Mumbai and Delhi are very high even though infrastructure is also very average compared to Dubai. So many investors are considering Dubai as the right place for the investment in properties,” Gianchandani said.
Rameez Manzoor Rufi, vice-president, Rufi Real Estate and Construction Company, said the new visa rule will have a good effect on the market. It will bring confidence within the investors. “It was the residency visa that actually attracted the investors to the property market,” he said.
In a survey conducted by the Khaleej Times, the market players and key stakeholders said international investors and buyers await clarification of new property rules.
“It is a bit early in this stage to precisely measure the effect of this announcement, however several of our clients have indicated that there has indeed been uptake in inquiries from investors who have sat on the sidelines for some time awaiting this announcement,” Speller said.
Rufi also expressed the same views and said it will take little time to clear the situation. “It is too early to say anything about it as it is summer and Ramadan as well. We will get a clear picture of it after Eid but I am sure it will bring a positive news,” he said.
Vineet Kumar of Asteco said the response from the international market on new visa law has been positive as buyers feel more confident in their purchase. “New buyers have approached us for purchase but we have not seen any significant increase in transactions since the announcement.”
Jesse Downs also said the response is positive, but the market is still determined by the fundamentals. “Unless the market is able to attract significant new second home demand, the direct and immediate impact on demand is marginal. Excluding second home demand, the market will be determined by job growth, especially of expatriates as many of these new developments are built for this target market,” she said.
She said few investors are willing to buy on capital growth alone, rather the yield is one of the key aspects driving demand. “While there are some areas of selective stability, average rents will continue to soften. This resulting product differentiation will really drive trends in the coming year.”
The analysts and stakeholders said permanent residency can give a boost to Dubai real estate industry as it will generate demand in the international market and especially attracts buyers from Asian and regional countries because of the UAE’s safe haven status in the region.
“Yes, we firmly believe that this offering can provide a big boost to the market if worked out properly. Buyers want to seek more clarity on the value of properties, which will be allowed for visa purposes etc,” Vineet Kumar said.
Jesse Downs said the residency visa provided with property purchase will help boost market confidence, but it will take time for this to translate into increased demand. “The market still needs to see actual implementation over time” she said.
“Sure, it will give more confidence to foreign investors, but we have to be realistic, long-term visa like three years is reasonable to expect,” Gianchandani said.
Rufi said almost all the people who have invested in the property market were actually interested in getting the residency visa. “I feel that permanent residency can definitely boost the property market. However, as I mentioned earlier, we will come to know after the Eid whether the new visa law can bring any positive change in the market or not.”
The experts said the authorities concerned should take more concrete steps to put the real estate industry back on track. They said transparency is still one of the key issues that could be addressed to improve the real estate market.
“Although the topic of transparency has been discussed at great length over the past few years, this is still one of the key areas that could be addressed to improve the real estate markets. Beyond that, it is really down to job growth, especially for expatriates,” Jesse Downs said.
Kumar also expressed the same views and said transparency is the key in reviving the industry. “More clarity and transparency on the calculation of service charges, availability of mortgage at competitive rates and master developers taking responsibility of completing master plans with all required facilities for the occupants are some of the challenges to revive the real estate industry.”
Rufi said in order to revive the market the demand and supply should be controlled and there should be some new policies from the authorities which can bring confidence in the present investors and potential buyers from other countries.
“More clear and transparent rules are required to sustain and grow this sector, government should take serious action on the defaulter be it developer or investors,” Gianchandani concluded.
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