By Claire Ferris-Lay
Analysts dubious on whether foreign buyers will pay premium to ensure residency
Real estate experts are split over the impact granting three-year property visas to some UAE home owners will have on Dubai’s beleaguered housing market.
The decision by the UAE government in June to offer extended visas to owners of properties worth AED1m or more, replacing visas that require renewal every six months, has divided analysts, with some suggesting the move could spur sales among foreign buyers.
“There are certainly going to be people in the world who come from some of these politically unstable countries who would pay a premium for a property if it meant they could get a visa,” said Tom Bunker, investment sales consultant at Better Homes.
“If the new visa rules aren’t going to include people from these politically unstable countries then we’re not going to see a big change in the property market.”
The restriction of the visa to homes worth AED1m or more may see some buyers pay over the odds for a property to ensure they qualify for residency, said Nick Maclean, managing director, CB Richard Ellis Middle East.
“Would someone pay AED300,000-40,000 additionally to get a visa? I think in many places, because of the comfort it would give, I think that would be the case in due course.”
Any boost to the market is unlikely to be seen until the fourth quarter, as buyers hold back for further details of visa regulations, he added.
Rents and prices in Dubai, the Gulf’s worst-performing market in the last three years, have been in freefall since the collapse of the emirate’s real estate bubble in late 2008.
A Reuters poll in June showed analysts believe prices could plummet a further 10 percent as the market is squeezed by nearly a third too much supply.
Poll respondents saw zero chance of Dubai's residential property market recovering in 2011 and gave just a 25 percent chance of recovery in 2012.
The likelihood of residency helping to swing sales in the emirate hinges on whether buyers believe the cost of paying a premium for property in an unstable market equals a fair trade.
“The crux of this issue is whether or not buyers will actually pay a premium just for the visa. This is unlikely because buyers are value conscious, especially now,” said Jesse Downs, director at Jones Lang LaSalle MENA.
The real estate consultancy said in June it expects a further 18,000 new homes to hit Dubai’s saturated market by the end of the year.
John Davies, CEO of Colliers International, Middle East, said he expected banks and government institutions to require independent valuation of properties to clarify which houses qualify within the AED1m and upwards bracket.
“I can’t see property prices escalating just so that people can get a residence visa,” he said.
There are also questions over whether homeowners who bought property for AED1m or more at the height of the property bubble, will now still qualify for a three-year visa now the value of their home has plummeted.
“I would expect them not to qualify if their property values are now below the AED1m ceiling, as the criteria for a visa will most likely be based on current market values not historical market values,” he said.
Recent unrest across the Arab world failed to give Dubai’s real estate market an expected boost, Deutsche Bank said in its most recent report.
Home values declined 1.2 percent in May compared with the previous month and rents fell by 1 percent. Apartment prices slid 1.3 percent in May, while villas declined 1 percent.
After reading this article which shows the confusion and contradictions with regards to the property/visa issues ,is it a surprise that property prices will not recover?It's a matter of credibility now, people do not believe anything to do with the property market due to the fact that they have been mislead /misinformed on so many occasions.
The question of paying a premium to obtain a visa is only relevant if there is a shortage of high-end property, which clearly at the moment is not the case. If someone has AED 1M to spend, they will buy an AED 1M property, not pay a premium on an AED 6-800k property.
The real question is whether the new visa rules will stimulate demand at all, and it will take time for the answer to become clear.
100% accurate Muhammad
Till there contracts are honored and transparency and a clear policy announced, investors who have been burned badly are never going to trust Dubai real estate again
You are correct, Muhammad, but just to add to the "misled/misinformed" a word of "mistreated!" After spending US$ 2 millions to buy a residential property, the authorities decided to cancel the residency visa. Readers shall always remember: do not be happy as it is an entry visa the authorities talking about and NOT a residency visa. As we witnessed, any rules and regulations (let alone charges, fees, etc) can be changed overnight.
Another day, another idea, and another expert opinion and guess what none of them agree and nothing is clear..
Dubai has many Experts and they seem to Mushroom by the Minute. Almost every person I meet or see is an Expert in some fiels - and many fields which I had never heard of when I went to university many moons ago, and I am still not an Expert in anything.
Well, let the Experts say whatever they want to say. They have to say something to justify their existance.
I agree with Muhammad, " It's a matter of credibility now" - Dubai seems to have lost this credibility, and my opinion is that these so called Experts were part of the process leading to the Crash. Lost Credibility takes a long time to re-build. It is like breaking a porcelin item and sticking it back with Super Glue - it is never the same like the original item. The Dubai Government have to do some serious thinking & come with genuine sensible solutions to re-build the faith and credibility lost.
What about people who more than one property?
Lets say if someone own two properties, and each unit is worth only 0.5 million in the current market conditions but togather their combined worth is 1 million, would the owner still get the residence visa?
I think they should as that way people will be more inclined to purchase the "sub-premium" properties and therefore reduce the oversupply issue.
I agree with CB Richard Ellis, nobody is likely to dive into the property market for the sake of a visa unless the operational rules have been revealed and therefore Q4, will be the testing ground.
What happens visa-wise in the case of joint ownership and the same question regarding sponsorship of family visas by the property ownership visa holder. Nobody is going to pay an extra AED 400 grand if those questions are not answered.
There was a case when the 6 month visa arrived where a property was valued at AED 2 million+ and both joint owners received a visa each, that to me seemed a rather elegant solution. However, one imagines that the authorities may not be so keen on that decision for a 3 year period. Double visa fees of course!
Also if there is to be any form of nationality discrimination as to who will or will not receive visas, reduces the impact the visa on the property market. Also what are the security checks, buyers might have the cash but how did they get the money?
As a retiree, I had intended to quit Dubai for SE Asia when my 3 year Emaar visa was due for renewal in November. No way was I going to be subjected to queues and charges every 6 months. Now I will reconsider, so at least this new law will have the effect of keeping some potential defectors.
I agree, there is no need to overpay as there is plenty of properties in the market at each price point.
With the 400K you can get a freezone business set up and running for the next 8 years.
This whole thing with the visas I never understood, we will see the impact after Ramadan I guess.