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Freehold to boost market

DUBAI — The recent landmark decision by Abu Dhabi to enact a free-hold property law — a strategic move that is expected to speed up the legislation of the long-awaited federal property law enabling full foreign ownership of real estate assets in the UAE as a whole — is expected to give a new impetus to the foreign investment flow into the country.

The federal legislation, also enabling foreign nationals to be issued a full title deed for their ownership of landed property anywhere in the UAE, will also prompt more developers coming to the fray with mega projects.

Property developers believe that only a uniform federal property law can allay investor fears and clear all the remaining ambiguity in those transactions, which are being labelled as freehold in some emirates. Investors are aware that the current law is still not transparent with regard to foreign ownership of property in the UAE. While the current federal law doesn’t prohibit the ownership of UAE property by a foreign national, the registration procedures are yet to be clearly defined. "As there is no proper federal property law in the UAE, freehold ownership cannot be held to be illegal, but neither is it explicitly legal," one lawyer pointed out.

As there is now a clear indication that a federal freehold law is in the offing, the deck is finally ready for Dubai and other emirates to go ahead with that vital piece of legislation permitting foreign ownership not only to certain developers but to all who are in the business.

Such a move, which is imminent, will see scores of new developers coming to the fore with more affordable properties in relatively less prime locations for the expatriate residents and investors. And property industry sources estimate that such a scenario will lead to a drastic upward revision of the property investments from overseas. This is particularly true in the backdrop of an increasing repatriation of Arab funds from the West in addition to the investments from non-residents from the neighbouring regions.

Current market research indicate the size of the AGCC real estate market to be around $ 90 billion to $110 billion with the UAE and Saudi Arabia accounting for some 80 per cent of the total market.

Abdul Rahman G. Al Mutaiwee, Director-General of Dubai Chamber of Commerce and Industry, has stressed the need for a law to formalise expatriate freehold ownership of properties. "The Federal Government is currently working on the property ownership law. For current buyers, a fair contract between a property seller and buyer would ensure the rights and privileges of the expatriates owning freehold properties in Dubai. If anyone has any doubts about his rights, he should carefully study the contract," he pointed out in a recent statement.

Analysts see Mutaiwee's statement as a declaration that Dubai government will safeguard the freehold rights of buyers until the federal law is passed. And it should be noted that a federal law can not be passed without the agreement of the Dubai Government.

Lawyers point out that notwithstanding the legislation of a property law, there are other legal matters that should be considered by property investors. "A purchaser may be at risk with regard to the initial monies deposited. The properties in question are often not yet built, yet purchasers are paying the developers a large percentage of the purchase price."

"There is no requirement under the current law for protection of the purchaser in the event difficulties arise with a developer who is not backed by the government. The matter is most likely left to the contractual agreement between the purchaser and the developer. Purchasers should consider that the contract is undoubtedly drafted in favour of the developer. There is also some uncertainty regarding the Sharia law implications of real property inheritance."

Stressing the need for an inflow of fresh funds into the market by attracting foreign direct investment, analysts said there is a need to introduce the concept of securitisation and regulations that increase its flexibility and market awareness for individuals on alternative debt options such as securitization, sukuks and funds. 'Investors should consider a number of important factors before making their decisions such as weighing different financing options using the availability of market information, flexibility and terms of financing; their ability to avail financing for the property, the return on their investment and the state of the secondary market.'