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The UAE needs to continue its efforts to reform and improve its regulatory structures and liberalise further the economy to attract more foreign investors. Moreover, Ayham Kamel, Director — Middle East and North Africa of Eurasia Group, a political risk research and consulting firm, believes more needs to be done in terms of laws related to ownership of property.
Kamel was a keynote speaker at the Global Real Estate Summit in Dubai last month. The summit ran parallel to Cityscape Global.
Here are excerpts from the interview:
- Which is the best place to invest in property in the region at this time?
There has been a sea of volatility in the Middle East and it has created a perception of rising risk in all sectors, particularly in real estate. Dubai and the UAE have escaped that trend and remain stable for investors.
What we are seeing are three fundamental things moving in a positive direction. One is the sector dynamic, as both Dubai and Abu Dhabi are showing signs of recovery in real estate. Secondly, we are seeing robust macro-economic fundamentals and that is reassuring for investors.
Growth is moving towards 4.5 per cent for the UAE this year. The settlement of Dubai's debt is moving in a positive direction. There have been constructive negotiations between Dubai and its creditors.
Thirdly, the political stability and security of the UAE have gone to a completely different direction than the rest of the Middle East. That is more reassuring.
These will build a strong foundation for Dubai and the UAE for the next two years.
Over the long term, the UAE needs to be very vigilant in monitoring the real estate market and risks of a new bubble.
- Some say there is a need to revamp property regulations. What is your view?
There needs to be additional reforms, absolutely. Dubai and the UAE have created an open platform for investors, but in terms of foreign ownership of property, we can do with additional reforms and more liberal laws that are more widespread and comprehensive.
There needs to be more clarity in the laws and regulations for the near future, such as in the ownership of property rights and transfer rights. There can be more reforms in that. The key issue for investors is to have predictability on the direction of the real estate sector and how it will move. I feel that constructive steps are needed in that area.
The regulatory structure can be improved to remove some of the burdens to foreign investors. The core issue is they want to see a robust governance mechanism to manage the risk of overheating.
We are already seeing a bit of that. I believe that reform in the UAE is a journey and that more positive steps can be taken to improve the investment climate.
- Would you say the turbulence in the region has not affected Dubai?
There is a divergence in how the region has performed. People believe this region is a riskier place to invest in. My viewpoint is that GCC states face a more limited risk. The UAE has proven to be a much safer country. It is definitely much more resilient.
In a sea of instability, it has tended to benefit and is well positioned to benefit from investors who find other places more volatile and are beginning to shift investment towards this country.
- Do you think Dubai will lose its shine as other countries copy its model?
A lot of countries have found that Dubai's model has elements that are conducive to growth. It is not just one model, as each country has created variations.
Many countries today are interested in creating an open platform for investors so that opportunities can emerge and feed on the economic cycle. Turkey and Qatar have gone in that direction.
Regional peers have created a competitive risk for Dubai and the UAE. I think Dubai still has a platform that it can build on and that competition can create a more sound structure in the real estate sector and in the projects that are executed.
- The International Monetary Fund (IMF) predicts a 4 per cent growth for the UAE. Is that good news?
The IMF has produced a positive trajectory of growth, but the UAE has already exceeded expectations. Growth is at 4.5 per cent and the UAE is beginning to regain its shine.
There is still a question hanging over Dubai's debt liability and its relationships with creditors. My view is that the right steps have been taken and Dubai needs to continue to create a credible record as far as debt repayment is concerned, from now until 2018.
The values of properties and companies have gone well because of the rise in the economic cycle. This is a positive trajectory.
- So there are no signs of a property bubble?
It is too early to say that there is no bubble emerging. However, there are three constructive factors that make me believe we are not yet at risk.
Most of the companies themselves are more careful and real estate developers are more vigilant.
It is a reassuring sign that the government is playing a more active supervisory role to ensure there is some sort of accountability.
The UAE Central Bank is also playing a role to prevent overheating by capping lending and mortgage rates. Right now, we are not there (a bubble), but there has to be a robust debate every year on where the economy is heading, while introducing measures and a cap on supply if projects are likely to fail.
- How useful are events such as Cityscape Global?
It creates a forum for debate on the fundamental questions about the real estate sector that need to be answered and where the sector is heading. It encourages us to find ways to avoid repeating the mistakes of the past and to inculcate a culture of learning and integrating what we have learned into our decision making process.
Read more about UAE cementing its asset status
Source: Mahmood Saberi, Special to Property Weekly
Ayham Kamel is Director — Middle East and North Africa of Eurasia Group