Dubai continues its real estate revolution

Local stock markets rose sharply yesterday on the announcement that UAE nationals will now be able to hold freehold title to industrial and commercial property in Dubai, instead of being subject to onerous transfer restrictions on granted land.

If nothing else this a reminder that the UAE real estate revolution remains unfinished. There are still plenty of market reforms to be done that will stimulate and grow this sector. Lawyers Al Tamimi yesterday also published a newsletter highlighting several recent clarifications to local regulations in the property sector.

Real estate crash

But of course that is to jump the gun as the main concern is still presently clearing up the mess left by the real estate crash of last year. News on the rescheduling of $26 billion in debt at Dubai World is anxiously awaited.

How significant is it then that nationals only can hold freehold titles for industrial and commercial property? It is hard to say. There is not likely to be a rush to pay the 30 per cent transfer fee. That will only happen when the existing land holder wants to sell.

On the other hand, this facility is good for liquidity where none existed before. Nationals in financial trouble can now more easily liquidate their assets by selling to other nationals. Assets are thereby turned into cash that can be employed elsewhere, and the assets put to more productive use.

Freeing up liquidity is a good thing, and banks will also presumably feel more disposed to lend against property with a freehold title. Yet it is hard to see this as a revolution in the same sense as the original decree allowing foreign ownership of residential and commercial property in designated areas in May 2002.

Indeed that decree followed an earlier one allowing foreigners to buy property on 99-year leases that was not very successful, and even after the second decree it still took a couple of years for the real estate market to really get going.

Foreign ownership

Perhaps there is a lesson here. There is nothing to stop freehold for nationals in commercial property being widened later to include foreigners – particularly when the long-awaited new companies law is issued, probably allowing 100 per cent company ownership by foreigners.

So the action this week is best seen as a step forward in an ongoing liberalization of the Dubai real estate sector. Other Gulf States are way behind. Even Abu Dhabi and Doha only have leasehold for foreigners and have not yet created a real estate regulator, let alone detailed laws.

But Dubai real estate faces far bigger issues, like debt and outstanding payments to contractors and looming oversupply, and it may be some years before the impact of the latest reforms are really felt.