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UAE Real Estate

The United Arab Emirates (UAE)

The UAE is a federation of seven emirates; Abu Dhabi (which serves as the capital), Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain, each governed by an absolute monarch and subject to federal regulation.

Foreign Ownership

Non-UAE and non-GCC nationals are restricted from owning real estate in various areas in the UAE.

On 13 March 2006, the Government of Dubai issued legislation permitting foreign ownership of properties in designated areas of Dubai. This law established the Dubai Land Department (''DLD''), which is the body responsible for all property transactions and property developers within the emirate of Dubai.

The Real Estate Regulatory Agency (''RERA'') is the regulatory body responsible for regulating the real estate sector in Dubai. The emirate's free zones, which offer 100% foreign ownership and zero taxes, are a major conduit for foreign investment in the country. These laws demonstrate a relaxation of the foreign ownership restrictions albeit that foreign companies and individuals may only acquire a freehold interest in designated areas approved by the ruler of Dubai from time to time.

The position is currently similar in Abu Dhabi and the rest of the UAE. The Abu Dhabi Government has identified designated areas as ''investment zones'' where the rules regulating foreign ownership of property have been relaxed.

In summary, UAE and other GCC nationals (and companies wholly owned by such individuals) have the right to own any property interest anywhere in the UAE and to have such rights registered at the relevant property registration authority. Subject to certain restrictions and requirements, foreign nationals may acquire a freehold interest, a right of Usufruct or Musataha, or a long lease for up to 99 years in designated areas in all emirates as approved by the Ruler of the relevant emirate from time to time except for the emirate of Fujairah which to date does not have specific laws permitting property ownership by foreign nationals.

Maturing Market

Over the past decade, the GCC real estate market has evolved from a predominantly cash-funded, off-plan driven investment boom to a consolidated market, servicing greater numbers of mortgage-financed property owners.

The market is maturing and the regulatory environment is developing towards global standards, which has had a positive impact on the real estate services industry, particularly in respect of property management and consultancy services. For instance, the GCC facility management market is projected to yield $66 billion by 2020, up from $37.3 billion in 2015, primarily driven by higher infrastructure spending across the region.

Furthermore, legislation in the UAE, such as Abu Dhabi Law No. 3 of 2015 and Dubai Law No. 8 of 2008, set out investor friendly regulations such as the requirement for developers to maintain escrow accounts for off-plan developments. This encourages institutions to fund new developments and is providing protection to mortgagees of off-plan purchases.

Projections

Real GDP growth in the UAE is expected to outperform the world economy each year between 2018 and 2020. Furthermore, Dubai's population is estimated to increase from 2.6 million in mid-2017 to 2.9 million in 2021. On the basis of these expectations, developers in Dubai anticipate that Dubai's residential supply will increase in the coming years. The Dubai residential market has around 78,000 units under construction and scheduled for delivery by 2020, indicating a 15 per cent growth from 2017 supply levels.

The Directors believe that the trajectory of Dubai's real estate market is expected to stabilize further in 2019, after a period of slowing growth and price adjustments of circa 5-7% forecast for 2018, catalysed by the buoyancy of the supply pipeline, before there is the potential for stability in 2020, once the supply pipeline starts to diminish.

Recent analyses by other property consultancies and management firms, including JLL, Knight Frank, Cavendish Maxwell and Asteco, have been similarly upbeat about the medium-term potential for market recovery in Dubai, albeit cautiously so. Forecasts from local real estate analysts and international players alike foresee an improving sector outlook by the end of 2019 at the latest.

This anticipated turnaround follows a period of declining returns for many property developers, contractors and management companies during the last three years. Pressure in the real estate market has been largely attributed to the sector's close ties to a range of macroeconomic forces, including the price of oil, GDP and unemployment. International oil prices have been down since mid-2014, and GDP growth in the UAE as a whole fell from 3.8% in 2015 to 3% in 2016, according to the IMF's World Economic Outlook database for October 2017.

UAE's real estate market has matched these macroeconomic trends for the most part. According to JLL, at the end of 2015 rents were falling in the residential and hospitality segments, and rental growth was slowing in the retail segment. By the end of 2017, residential rents were beginning to bottom out, while retail and hospitality rents continued to fall. At the end of the third quarter of 2017, rental rates for retail had fallen further and the hotel segment had joined residential properties with rents bottoming out.

The Directors believe the current environment therefore provides a number of opportunities to enter the UAE real estate market following an extended cooling off period. Furthermore the backdrop of improving oil prices and anticipated increase in population further strengthens investment rationale.

Commercial Property

Whilst the commercial property market in the UAE is generally soft, there continues to be demand for high quality space in key locations.

The significant growth in investment in the logistics market in both Abu Dhabi and Dubai is creating investment opportunities in areas around the key ports and airports. E-commerce is also experiencing rapid growth which is driving expansion in the logistics market, including opportunities for warehousing.

Abu Dhabi

The hotel market continues to grow as the Abu Dhabi Tourism & Culture Authority stated in 2017 that Abu Dhabi welcomed more than 420,000 hotel guests in August, representing growth of 13% compared to the same month in 2016. Market commentators consider the lifting of visa restrictions for Chinese travellers has contributed to the rise in hotel guests.

In Abu Dhabi, the supply of retail assets is expected to increase significantly in the medium term with the delivery of Al Maryah Central Mall in 2018, followed by Reem Mall, and the expansion of existing malls over subsequent years. Furthermore, Majid Al Futtaim has announced plans to commence the construction of City Centre Al Jazira Mall due for completion in 2021. This mall will be anchored by a Carrefour hypermarket and will include 153 retail stores.

Long Term Growth

There are a number of factors which the Directors consider to be supporting the longer term growth of the real estate market in the UAE. These include the following:

  • Dubai's population stood at 2.8 million at the end of the second quarter of 2017, an increase from approximately 2.4 million in 2015.
  • The continued expansion of Dubai International Airport with passenger numbers having grown from 78 million in 2015 to 88.2 million in 2017.
  • The new airport ''Al Maktoum International Airport'' being built in Dubai with a projected capacity for 160 million passengers and the creation of a global logistics hub (particularly in connection with the recent expansion of the Jebel Ali Port capacity).
  • Dubai Customs reported that non-oil foreign trade grew by 2.7% and reached AED 327 billion in the first quarter of 2017.
  • Dubai's non-oil private sector grew faster in the first half of 2017 compared to the same period in 2016, according to reports by Emirates NBD.
  • The UAE has experienced an increase in institutionalised investments as real estate investment trusts are emerging as a funding tool.

REITs

Industry experts expect a rise in specialised REITs focusing on specific asset classes. This could potentially lead to a greater pool of proactive investors in the real estate market and increase funding avenues for developers as well as providing smaller investors with access to diversified property investments.

Geographical Location

A third of the world's population lives within a four-hour flight from Dubai, and two-thirds are within an eight-hour flight. Today, Emirates airline operates on average 3,600 flights globally per week to 155 destinations in more than 80 countries around the world.

Chinese Investors

High net worth Chinese buyers have been increasingly interested in acquiring property assets in the UAE in 2017. Chinese investors were ranked the eighth most active real estate investors in 2017 in the UAE. By way of reducing over-dependency on oil and gas, the UAE has been eager to attract Chinese investors to the real estate market. A recent example is Five Holdings (earlier known as SKAI) entering into an AED 1.1 billion syndicated financing transaction, which involved seven parties of which four were Chinese financial institutions. Those funds were used in relation to Five Holdings' upscale hotel projects in Dubai.