The series of landmark policy changes this year are creating unprecedented opportunities for expat property investors

The UAE has introduced new laws this year that effectively widen the range of possibilities for expatriates to be more deeply involved in the long-term economic growth of the country. Many of the policy changes mainly concern foreign business ownership, visa regulations and curbing the cost of living.

In the real estate sector, experts believe the new regulations are particularly effective in drawing more foreign direct investments. We look at the new laws and their impact on the real estate landscape.

Foreign ownership

The UAE Cabinet approved in May changes to foreign business ownership rules, which had previously restricted foreign businesses to designated free zones. Outside these zones, foreign establishments can only operate if they yield 51 percent ownership of the company to a UAE partner. The new law, which is set to take effect later this year, would allow 100 percent ownership of non-free zone businesses by foreign investors.

“For a long time, partial ownership of 49 percent has scared off prospective investors,” says Anna Skigin, CEO of Frank Porter. “If the law goes ahead, it will create more openness in the region and a huge surge in foreign investment. A more open and friendlier business environment will positively affect the real estate market — as the confidence in the region increases and more people will purchase properties to live in or for investment.” “The new initiatives, like the option to work from home, will encourage more people to start businesses without significant expense and bureaucracy, further incentivised by the news that they will be able to own 100 percent of their company,” says Covill. “This, together with streamlining the development process and speeding up payments to contractors, will create jobs and growth and encourage people to remain in the UAE, which means more people to rent and buy property.”

10-year visa

Along with the new business ownership regulations, the UAE Cabinet, chaired by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, also approved a new residency system that would grant 10-year residency visas to investors and certain professions. Students will also get a five-year visa, and the Cabinet is reviewing the possibility of extending their residency permit after graduation.

This month the UAE Cabinet also approved a new law that would allow retirees over the age of 55 to avail of a longer residency visa that is renewable after five years. The law will take effect next year.

“[The extended visa] will help boost the economy and property prices, which on price per square foot basis are clearly the lowest globally for a city that has a highly advanced and developed infrastructure and completely secure to live, work and visit,” says Kalpesh Sampat, managing partner of Gulf Sotheby’s International Realty.

The current two-year property-linked investor visa system is well-intended but does not lend itself to attract buyers, particularly investors who prefer a longer timeline for certainty and stability, says Sampat.

“Under the present rule, anyone who buys ready property worth at least Dh1 million is eligible for a six-month residency or investor visa along with the immediate family members and renewable unconditionally,” he says. “For property over Dh1 million, a two-year visa is granted.”

In comparison, a longer 10-year visa would be more attractive to investors as it gives them a long-term perspective when setting up start-ups, businesses or branches of their companies. For residents, the new regulations, including the five-year student visa, allows better planning around education and family.”

Mortgage law

The mortgage caps currently in place have served an important purpose in preventing a spike in speculative buying. However, there is also clamour from the industry to revisit the stringent regulations. Covill believes that relaxing the mortgage caps will help address a pent-up demand from end users, especially at the upper end of the market, where the down payment is at least 35 percent.

The proposed Mortgage Law revealed by the Dubai Land Department (DLD) in April does not mention possible changes to the loan-to-value (LTV) ratio regulations, which currently limit off-plan mortgage to 50 per cent of the property value and 25-35 per cent for ready property.

“It will be interesting to see if the new mortgage law proposed by the DLD gets implemented and in what form as details have not yet been revealed,” says Covill. “[Relaxing the mortgage cap] should, of course, be federal and not just for Dubai and be actioned by the UAE Central Bank. The initiative shown by the DLD though is positive, and I firmly believe that more flexibility in financing options is key to the healthy growth of the maturing real estate market in the UAE.”

The proposed changes to Dubai’s mortgage regulations, however, is expected to have a big impact on foreign investors, corporates and real estate investment trusts (REITs), which have had limited exposure to the UAE market compared with other international markets.

“Most of these entities would be investing in commercial properties, but they may look to take whole residential buildings that are being delivered, which would soak up some of the excess supply,” says Covill. “The yields available are attractive when compared to other worldwide options, and there is always strong rental demand in the emirates due to the transient workforce and the structure of some companies’ housing allowances that do not allow their employees to use the funds to pay down a mortgage, so they are forced to remain tenants.”

Published in Gulf News 02/10/2018