There has long been a discussion about public and private entity collaboration, and how it can be implemented across sectors to boost economic activity and strengthen the nation in the process. There are two schools of thought in this context, one of which is that public and private sectors must seek to grow in their respective territories, without interfering with each other.
The second denotes that the public and private sector entities belong to the same industry and, hence, should be provided with a level playing field that fosters healthy competition, effectively boosting product differentiation and innovation within a given market. And resulting in better products.
This applies to the real estate sector as it should to any other industry. The common mantra of ‘Build and they (consumers) will come’ is no longer applicable. It is rather the inverse: ‘They are coming - so build’.
Land on preferential terms
Developers no longer need to create demand as demand is already imminent, especially with the introduction of advantageous, new regulations, Dubai opening up to tourism again, and the onset of the Expo. The focus should be on how new projects should be completed and how they would add value to the overall industry landscape.
For a healthy competition, an ideal landscape should be nurtured wherein private developers be granted similar access to land banks as government-owned players are, with enhanced payment terms and lowered land costs. Only after the 2008 crisis, upfront payments were introduced to reduce the chances of developers running away after selling properties on land they didn’t own yet.
To support private developers, it would help if those with a track record and a well-established credibility are offered better payment terms, i.e. if they could pay for land post-sale. Moreover, if private developers would be granted the same land costs that government-backed developers receive, and if they would get unlimited access to corporate loans as long as they qualify, competitive neutrality would be further enhanced.
Dubai is a diversified and mature real estate market. Both private- and public-sector players get their fair chance to compete in a conducive and enabling environment and thereby grow, adding to the overall property offerings.
On a need-to basis
In September, Dubai passed the Executive Council Resolution (No. 23) of 2020, which sets out clear guidelines for the launch of any new company by the government. The new resolution annuls any other legislation that contradicts or challenges its articles.
Seeking to shape the contributions of the private entities to the national economy, the Dubai government’s recent decisions allow enough space to private sector players to operate without worrying about government-funded entities taking over too much of their business. This is essentially what Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Dubai Crown Prince and Chairman of the Executive Council of Dubai, mentioned during the launch of the new resolution.
Having seen this unprecedented pandemic affecting sectors, governments are now clear about what their roles should be following these times. There is also much clarity about how the private sector can contribute to growth and how the overlapping of the private side of the industry with the public side of it can be leveraged for the greater good.
This level playing field will contribute to the growth of the economy and prove beneficial in fighting the challenges and aftermath that the industry is now combatting due to COVID-19.
In this public-private debate, there are lessons that can be learnt. Here, I would like to mention the proposed amendments to the Electricity Act of 2003 in India. The amendment intended to free up the power sector so that private players could be given a level playing field in Mumbai. The power ministry of the state drafted a bill that sought to allow multiple private franchisees operating in the distribution, with state-run utility company becoming owners of the network. This led to electricity reaching most parts of the state at reduced rates.
It is important that decision-making bodies and governments closely consider regulations and encourage innovation and diversification to ensure that rules enable healthy competition across sectors - and especially in real estate.
- Farhad Azizi is CEO of Azizi Developments.