Investors’ red tape worries prolong Dubai property woes

Piecemeal moves to tighten property regulations in Dubai will do little to help the Gulf gain mature property market status, say industry analysts.
Investors’ red tape worries prolong Dubai property woes
By Reuters
Thu 30 Jul 2009 04:00 AM

Piecemeal moves to tighten real estate regulation in Dubai will do little to help the Gulf gain mature property market status and attract investment, say industry analysts.

Dubai’s once heady property market is mired in malaise after the speculative cash that fuelled its six-year boom dried up late in 2008, while more conservative Western investors prefer mature markets with greater transparency and regulation.

“You’re not going to get Western expat money deployed locally when there is still confusion over property ownership rights,” said Nomura Investment Bank analyst Chet Riley.

Andrew White, head of Middle East operations at UK-based investor Kenmore Property Group, said Dubai remains a very juvenile market by international standards.

“It will take another three or four years to actually become anchored by investors rather than traders,” he said.

By contrast, the property markets of Europe and the US are attracting increasing levels of investor interest because they are seen as being closer to entering a recovery phase than regions like the Gulf.

Dubai has introduced several tweaks to property laws and regulations to facilitate the change to an investor-driven market, from a trader-driven one, although real estate industry experts say much more needs to be done.

EFG-Hermes’ vice president of equity research, Sana Kapadia, said while the emirate’s regulation had become clearer over the past 12 to 18 months, mortgage and strata law need more clarity.

“Dubai has made headway in terms of setting up property owners associations but more information is needed on property service fees for example,” Kapadia added.

In May, the UAE said it would grant expatriate homeowners multiple-entry visit visas enabling them to stay six months at a time if they owned properties worth at least AED1m ($272,300).

Analysts, however, want more details on which properties and who would be eligible, and what the visa requirements are.Over the past year, Dubai’s property watchdog, the Real Estate Regulatory Authority (RERA), has introduced a monthly rental index, new laws for property maintenance and a law that lists a sliding scale of refunds for investors who default on their payments on unfinished properties.

Against this backcloth, Dubai property prices are expected to slump a further 20 percent in 2009, a Reuters poll showed last month.

The lack of information about the planned merger of Dubai’s real estate giant Emaar Properties and three local firms, and their strategy going forward, is one of several cases highlighting the need for more clarity and transparency in the emirate’s property sector.

Dubai Holding, owned by the ruler of Dubai, and Emaar said in June that the builder of Burj Dubai, the world’s tallest tower, would merge with developers Dubai Properties, Sama Dubai and leisure developer Tatweer.

“The US and European markets have high levels of clarity in terms of regulation, but that isn’t the case here,” said Bobby Sarkar, analyst at Al Mal Capital in Dubai.

“If you look at Emaar and the potential merger, there is little financial clarity on how this will proceed and that is going to worry investors... in the US and Europe, they would tell you what the terms of the merger would be.”

Similarly, investors are waiting for more information on the restructuring of troubled UAE mortgage lenders Amlak and Tamweel. Officials have been saying since March that a decision would be made soon.

Dubai is not the only developing market in which offshore investors are closely monitoring corporate and regulatory issues with a view to potential future investments.

For the meantime, the days of speculator investors snapping up Dubai properties to turn a quick profit have been replaced by a more conservative breed with a longer term outlook.

“The whole legal system for the UAE is not as clear as the UK and effective regulation relies on clear law,” said White. “That has made some foreign buyers wary.”

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