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UAE real estate in danger of losing foreign capital
The UAE is in danger of missing out on a "tidal wave of investment" that overseas institutions pumping into global real estate, says a Dubai-based property specialist.
- By Robert Ditcham, Staff Reporter
- Published: 00:00 April 4, 2007
Dubai: The UAE is in danger of missing out on a "tidal wave of investment" that overseas institutions pumping into global real estate, says a Dubai-based property specialist.
European institutions have made approximately $5 billion available for investment into overseas property sectors, but only a small percentage is heading to the UAE, according to property services firm CB Richard Ellis (CBRE).
Fewer limits on foreign ownership, more clarity on property laws and more areas available for foreign investment could make the UAE a more attractive investment environment for European and Far Eastern banks and fund managers, explained Nicholas Maclean, managing director of CBRE Middle East.
"Global institutions have allocated substantial components of capital for the UAE, but are having to re-allocate them elsewhere in the world simply because they can't spend it here. The UAE is in danger of missing out on the current momentum of capital flowing into real estate," he said.
The percentage of funds that pension funds are allocating to real estate has risen from six per cent to approximately 10 per cent, according to CBRE research, with emerging markets the intended target for $5 billion of an overall $20-$25 billion available for European institutions to spend.
Cross border real estate investment elsewhere in the world now accounts for 50 per cent of the total, whereas for the GCC, it currently only represents nine per cent, the research revealed.
"At the moment, institutional investors are going away empty handed because they can't get easy access to the market and to the people who potentially would be interested in doing joint-venture institutional investments here."
Maclean says investors lack understanding of UAE property laws, ownership requirements and why investments are restricted to certain areas. At the moment, only a limited property stock exists in zones where foreign investment is permitted.
These factors mean investment is heading to markets such as Vietnam, Malaysia, Indonesia and Morocco, where returns are as high as the UAE (but where risks are greater) but where regulations are "clearer" for spenders.
Maclean encouraged Dubai government to release more of its commercial property stock to foreign investment and spend the resulting capital on either domestic infrastructure or invest in foreign markets in order to hedge its risks.
"The government of Dubai sits on approximately 23 per cent of all the commercial stock here. It has a wonderful opportunity to create a sell and lease back situation with its own departments and buildings, providing exactly what institutional investors are looking for," he said.
However, Dubai is currently working hard on creating an attractive investment environment through additions to its regulatory framework.
Tom O'Grady, real estate partner at the Dubai office of global legal services organisation DLA Piper, said the upcoming Strata (Condominium) Law, Trust (Escrow) Accounts and clarification over the rights of owners associations will give institutions confidence that the serious sums they plan to invest will be well-protected.
Land Department officials said draft versions of each law have been submitted to Dubai's rulers for final approval.
Fast facts
What is required to lure more investment
- Expansion of the UAE's current 23 investment areas.- Fewer limits on foreign ownership.- More clarity in the wording of Dubai's Property Law number seven.- Consistency of legislation across all emirates.- A properly drafted landlord/tenant act.
"At the moment institutional investors are going away empty handed because they can't get easy access to the market and to the people who potentially would be interested in doing joint-venture institutional investments here."
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