United Arab Emirates: 16/03/2006

Property - the most viable option

By Saifur Rahman, Business News Editor - Gulf News

Dubai: "The party for the stock market is over." This is how Hussain Sajwani, chairman of Damac Holding, has described the latest development with regards to the new property law and the stock market crash.

"The time for making quick bucks is over now," he said.

In a landmark move, the Government of Dubai on Tuesday issued a long-waited property law, legalising foreign ownership of properties in pre-designated areas in the emirate.

His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, issued Law No 7 that legalises freehold ownership of land and property to UAE and GCC citizens, while allowing the same rights to non-GCC expatriates to pre-designated areas that will be approved by the Ruler of Dubai.

Non-GCC expatriates will be given the right to acquire whether a free hold property, or a 99-year lease property, in areas designated by the Ruler.

The law comes nearly four years after the government first announced freehold ownership to expatriates, grouped under three Dubai-government owned entities Emaar Properties, Nakheel and Dubai Properties.

The new law paves the way for the expatriate homeowners to register their properties in their names with Dubai Lands and Properties Department.

Mohammad Sultan Thani, director at Dubai's Lands Department, said, his organisation is printing the text of the new property law for free distribution to the public.

"The issuance of the law is a very good news and we are all ready for serving the new home owners.

Procedures

"We are printing the propery law for the public that will create an awareness among the home buyers on the procedures. We have already published booklets for the public on the registration process," he said.

The law will be followed by a number of new bylaws that will identify the freehold areas in the emirate as well as determine the registration fees and procedures in the coming weeks.

"The law sets out the legislative framework for freehold real estate ownership in Dubai. It confirms the right of UAE and GCC Nationals to own property anywhere in Dubai and makes provision for foreigners to own real estate in Real Estate Areas designated for that purpose," Mohammad Ali Al Abbar, chairman of Emaar Properties said in a statement issued yesterday.

"It reaffirms what Emaar introduced with the launch of Emirates Hills in 1999. As the first project in Dubai or anywhere in the region, that offered a unique opportunity for nationals and expatriates to purchase land and build their dream home, Emaar broke new ground with a concept that had never been tried before."

Now, the big question is, will investors pull money from the stocks again to pump into real estate?

"Are you kidding? The stock market is almost drained. Where will the money come from?" asks Sajwani, whose Damac Properties sold more than 4,500 apartments to investors and is poised to deliver 1,000 of them this year.

Good question, considering as much as Dh28 billion was siphoned out of the market in a matter of hours on March 14 a day when, coincidentally, the government came up with the property law.

Dubai's shares fell 11.7 per cent on Tuesday, its largest fall in a single day in years, as a region-wide bearish sentiment triggered panic selling although analysts said the UAE economy remained robust and the market was supported by strong fundamentals.

Shares fell across Gulf markets the same day, which analysts said was a correction after a liquidity driven boom stretched valuations last year.

The property law announcement comes as a relief to 20,000 or so new homeowners, more than 13,000 of whom have already moved to their new homes and the rest are waiting for their keys before the end of the year.

At an average price of Dh1 million per unit, this translates to a whopping Dh20 billion ($5.5 billion) worth of freehold properties.

Good news

"The announcement of the property law comes just at the right time. It's a good news and will boost property market and we are happy about it," Sajwani says.

"The law will regularise the market and boost investor confidence in the real estate sector."

He says, it will have a long-term impact on the stock market as investors will vie for the real estate as a more viable option than the stocks.

What about those shelling out more than half of their income to landlords? What does the property law mean to them?

"I don't think there will be a major impact on the rent market," said Elaine Jones, chief executive of Asteco Properties.

House rent in Dubai shot up from 40 to 100 per cent depending on location and segment, during the last 12 months, forcing low-income residents to send their families home in order to survive.

Although household income of many families have also gone up to a certain extent due to an increase in salary, inflationary pressures from high oil price and escalating cost of living are making things worse, with many finding it difficult to make both ends meet.

"With the new property law in, we expect more residents to buy properties. There might be a short term minor impact. However, with more families coming in, there will still be a shortfall in supplies in the rental market," she said.

Which means, the rents would continue to go up in the coming years.

"The overheating rental market in Dubai is set to cool down as supply for both residential and commercial real estate begins to meet rocketing demand, and prices should return to acceptable levels over the medium term.

"We forecast 84,786 new supplies in 2006. This is part of the 285,786 new supplies coming online between now and 2008, based on the information we have."

Real estate sector's contribution to the UAE's GDP rose to Dh20 billion in 2003, over Dh19.42 billion the previous year, according to government statistics.

Construction sector's contribution to the country's GDP rose to Dh17.66 billion in 2003, over Dh16.97 billion the previous year.

Challenges

However, everything is not well in the emirate's real estate sector.

The recent rain that created a havoc in Dubai, exposed the construction quality of buildings and villas, or the lack of it.

Water seeped through the thick concrete ceilings in many freehold homes in upmarket localities in what is now better known as New Dubai.

This is compounded by a number of woes, including flooding of streets and lowlands as the waterlogged residents tried to drive through to reach offices in time ahead of a weekend.

The rain has drained the value of certain properties, that were bargained off in the range of Dh3 to Dh4.5 million.

There is a significant difference in the pre-rain and post-rain price of properties, some say.

The rain proved beyond any reasonable doubt certain worrying facts what has been either a rumour or a whisper for so many months.

Developers and contractors have compromised on the quality of construction and on the choice of materials and finishing.

The new bylaws, could well look into those aspects as well, that will strengthen investor confidence further.