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Abu Dhabi’s new real estate law, which came into effect in January after seven years of discussions and deliberations, is widely expected to have a positive impact on the emirate’s property market. It’s come at an opportune time when the market is looking for a new catalyst to drive it out of passivity. Following a significant upswing from 2013-14, Abu Dhabi’s real estate market remained flat last year, thus stakeholders are looking for a new impetus to a market rebound, which they hope would come from the positive sentiment brought about by the new law.
Some industry experts say the new real estate law will help reduce the impact of economic forces, particularly the oil price slump, on Abu Dhabi’s property market. “The new law will lessen the impact of potential cyclical economic factors, such as oil price movements, on real estate prices,” says Chris Taylor, CEO of Abu Dhabi Finance. “It will create a less volatile environment, which should encourage continuous investment and growth in the sector.”
Oil revenues have always been a key driver of Abu Dhabi’s economy and real estate markets. David Dudley, International Director and Head of Abu Dhabi Office at JLL, explains, “The oil sector forms over half of Abu Dhabi’s GDP, so a reduction in oil price directly impacts a major part of the economy.” Sallie Bowtell, Partner at Trowers and Hamlins, says the dip in oil prices impacts investors whose income is premised on the success of the oil industry. But improving transparency and investor protections could encourage more foreign investment in real state, although Bowtell points out that the new law has not introduced any further changes to foreign ownership restrictions currently in place.
In crafting the new law, Bowtell says Dubai was an important point of reference. “It is hoped that this will ensure that the legal framework in Abu Dhabi will develop in an efficient way over the coming years,” she says. “This efficiency should lessen the impact that economic factors, such as fluctuations in foreign exchange rates or the price of oil, have on the real estate market. In turn, it is hoped that this will drive growth in the market.” The new law will also inevitably suppress supply growth as greater responsibility and regulation is placed upon developers. “This will help reduce the current period of weaker demand,” says Taylor.
“However, the key will be to allow sufficient supply, which will maintain a healthy balance between supply and demand to keep rents and prices at a competitive level.” However, some industry experts are not too optimistic about the short-term gains. According to Dudley, the new law will help improve Abu Dhabi’s attractiveness to investors, but is unlikely to significantly lift transaction volumes in the current market environment. “An increase in transaction volumes will be much more dependent on the return of government spending, a recovery in oil prices
and a general improvement in regional investor sentiment,” he says. Dudley believes the new law is unlikely to drive the recovery, but will be there to protect investors when the next market upswing occurs.
“The law certainly is a good move and will improve the risk profile of real estate investments in the Abu Dhabi market,” says Dr Martin Berlin, Partner at PricewaterhouseCoopers. “It also needs to be seen in a longterm perspective and within that it will contribute to a solid legal foundation and support the market to mature and grow.”
Impact of oil
How soon Abu Dhabi’s property market can recover will depend on the oil price movement. “Abu Dhabi is certainly more dependent on oil than Dubai and thus was hit by the oil price more severe than Dubai. In case the oil price recovers, Abu Dhabi will recover with it,” says Berlin.
Furthermore, it’s important that the government continues with its infrastructure investment plans. “Economic growth without the development of the respective infrastructure is impossible,” says Berlin. “Thus, the commitment to infrastructure projects is very important and shows a long-term view on the overall development of an economy.”
Source: S.A. Kader, Special to PW