The UAE federal government’s decision to extend visas for real estate investors from six months to three years will boost demand for property but is unlikely to cover the massive oversupply that still exists in the market, analysts told Arabian Business.
According to a report on newswire WAM, the decision was taken during a cabinet meeting on Tuesday chaired by vice president and prime minister of the UAE and ruler of Dubai HH Sheikh Mohammed Bin Rashid Al Maktoum.
The move has been universally welcomed by the industry as a positive move for the beleaguered real estate sector.
“We believe this could significantly boost demand in the UAE’s residential real estate sector, particularly in Dubai, as the promise of a long-term residency visa was a major driver of second-home purchases during the real estate boom prior to mid-2008,” said Farouk Soussa, a Dubai-based economic analyst at Citigroup.
The real estate sector in Dubai was one of the biggest markets bit by the global financial crisis and impact of the credit crunch and lack of finance led to property prices tumbling by up to 60 percent and nearly half of projects being canceled or stalled.
The slowdown also led to a major oversupply problem in the emirate as demand dried up. A report by Jones Lang LaSalle estimated over 50,000 new residential units will be completed in Dubai between now and the end of 2013, raising the current stock of homes by some 15 percent.
According to Soussa , the industry needs to be realistic about the impact the new visa rule will have as the “overall impact on the property market will likely be somewhat muted by oversupply issues that are being exacerbated by the ongoing completion of new properties.”
At the height of the real estate crisis, confusion over the visa regulations for non-residents led to Federal authorities announcing in mid-2009 that real estate investor visas were only for six months, which had to renewed at a cost of around AED2,000 ($544).
The u-turn by authorities has been welcomed by real estate agents, with Richard Paul, head of residential valuations at the Cluttons agency describing the move as “all good news.”
“It was a learning curve reducing it to six months and everyone disagreed with that and they have now reverted back to the three years… Talking to banks and clients it was something that needed to be done.
“If you are trying to market your property market as an international hub for investors you have to make it as easy as possible from them and that wasn’t the case with the reverting to six months,” Paul said.
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Qatar changed its visa regulations for investors earlier this year and Paul believed this may have been the catalyst for the UAE to follow suit.
John Davis, CEO Middle East of real estate consultancy Colliers International welcomed the move and said it “will certainly have a positive effect on the market” but some investors will take a wait-and-see approach as to what the terms of the new regulations will entail.
“Several investors were historically promised “foreign investor status” type visas which didn’t materialise,” he said, adding some investors will be cautious to see what the terms of the regulations will be.
One drawback is the current visa rules are only open to investors with a property valued at over AED1m ($272,257). Davis said it will be interesting to watch whether this minimum figure will be revised.
Once the full terms and conditions are announced, Thomas Bunker, an investment sales consultant at real estate agency Better Homes added it will be vital to know if there are any restrictions on some nationalities availing of the new three-year residency visa or whether the rule will be widespread.
“I must add that this new visa term may not be as significant as the market hopes if it does not extend to all of the nationals who in the past have shown a strong interest in the UAE market. If the visa rules do not apply equally to all nationals, the effect of the new visa term will be lessened,” observed Bunker.
While the change in visa regulations is unlikely to have any immediate impact on prices, Jesse Downs, director of management consulting at Jones Lang LaSalle, said it would help to reinforce Dubai and UAE’s image as a safe haven for international investors.
“This is definitely positive news because this will help to restore market confidence… When combined with the regional events surrounding the Arab Spring, this solidifies the UAE’s position as a business and investment hub in the region.”
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