The link between legal reforms and real estate investment


Even as a years-long softening in the rental and sales prices of Dubai’s real estate continued in 2018, industry experts agree that any further market corrections from the highs of 2014 that have not yet played out will not extend beyond 2020. Moreover, amid the decline in average property prices, the sector has grown considerably both in absolute terms and relative to the wider economy. According to the Dubai Statistics Centre (DSC), the value of real state activities increased by 28% between 2012 and 2017, from Dh21.5bn ($5.9bn) to Dh27.6bn ($7.5bn), while the sector’s contribution to the emirate’s GDP grew from 6.7% to 7.1%.

Size & Performance

Although the property market has weathered downward pressure in rental and sale prices since the its recent peak in 2014, there are reasons to believe that this trend could soon turn. Many analysts had predicted that this upturn would occur before or during 2018, but continuing property development amid falling prices has worsened a mismatch between supply and demand and resulted in losses or reduced returns for developers. However, signs of recovery in the global price of oil and the investment prospects of Expo 2020 should drive demand beneficial to sellers and landlords across the residential, office, retail and leisure segments.

Moreover, dampened prices – and the possibility, as Standard and Poor’s has predicted, that prices may fall another 10-15% in 2019 – have created a buyer’s market and opportunities for those who have aspired to, but could not previously become, homeowners. Lower costs could also bring high-end commercial and residential addresses into the price ranges of those who would not previously have considered them, and the bottoming out of the price cycle could drive an increase in purchase volume and spur the market’s growth.

“This is actually creating an opportunity for investors to come into the market and own something that they had not necessarily been able to before, because of the softening prices,” Matthew Gregory, head of sales at the real estate classifieds website Dubizzle Property, told OBG. As of mid-January 2019 the site listed roughly 25,000 apartments for sale in Dubai, and company analytics indicated a significant uptick in searches for such properties in 2018 against the year prior. This increase in interest may indicate that potential home owners recognise that the market has turned in their favour, in terms of both short-term pricing and longterm investment. Within the most-searched areas of Dubizzle’s listings, the average property price declined year-on-year (y-o-y) by 8% for apartments and 9% for villas between the first three months of 2017 and the first quarter of 2018. Regarding rentals, Gregory added, “People can now start to negotiate and have an intelligent conversation with their landlords in order to make sure they are getting the most possible benefit.”

While the market seems to be moving in buyers’ favour, sales figures from the Dubai Land Department (DLD) and market analysts reflect mixed outcomes. Between the first half of 2016 and the first half of 2017, the volume of property transactions grew by 25.9%, from 28,300 to 35,600, while their value rose by 16.8% to Dh132bn ($35.9bn), up from Dh113bn ($30.8bn). However, the following year reversed that growth: the DLD recorded 27,600 transactions worth Dh111bn ($30.2bn) in the first half of 2018, down 28.7% by volume and 16% by value against the same period of 2017.

In spite of these results, developers are expected to deliver some 30,000 dwellings – both apartments and villas – in 2019. Although this may stress an already over-supplied market in the near future, it should also prepare the emirate for anticipated growth in the longer term. Craig Plumb, head of research for MENA at the property consultancy JLL, told OBG, “The old maxim of ‘If you build it, they will come,’ is probably not so true as it was, but certainly, in some ways, creating the future is one of Dubai’s themes.”

Structure & Oversight

Since the financial crisis of 2008-09 and the ensuing downturn in the real estate market, oversight has become increasingly important in Dubai. The emirate has emphasised mitigating the risks of the degree of real estate depreciation that occurred following the financial crisis, when prices fell by 50-60% across property segments.

Within the Executive Council, the DLD is charged with documenting property transfers, issuing real estate ownership, organising and promoting investments, and raising public awareness regarding real estate. Formal regulation falls primarily to the DLD’s legal arm, the Real Estate Regulatory Agency (RERA), which mediates relationships between contracting parties, organises property exchange, manages real estate licensing and offers financial and technical monitoring of developments. Moreover, RERA has recently prioritised the adoption of technologies, such as its new digitised platform, the Real Estate Self Transaction, to improve the efficiency and transparency of property dealings.

Recent Reforms

A raft of new measures designed to attract professional talent and foreign direct investment (FDI) to the UAE are among the most significant changes to the sector’s regulatory framework in recent years. On the individual level, the federal government announced plans in May 2018 to begin issuing 10-year visas to certain skilled professionals, including technology entrepreneurs, doctors and lawyers. It followed up in September 2018 by approving a plan to make expatriates over the age of 55 eligible for five-year, renewable retirement visas, provided that they meet one of several criteria regarding income and assets.

On the corporate level, the Cabinet also announced in May 2018 that it would begin permitting 100% ownership of businesses based in the UAE by foreign investors, and the change entered into force in November 2018. Previously, such arrangements were only permitted within the country’s free zones (FZs); foreign ownership outside the FZs was capped at 49%, though a structure allowed foreigners to reap the majority of profits derived from these businesses while leaving majority ownership in the hands of Emirati nationals. Although the details of this liberalisation had not been specified as of January 2019, the new law is expected to open up a range of sectors to full foreign ownership and incentivise FDI, which could drive growth across the economy and stimulate increased employment, earnings and property demand.

Commenting on the changes, Plumb told OBG, “Whether any one of those moves in and of themselves will be enough to have a huge positive impact on the market is questionable, but their combination may well improve sentiment and improve market conditions.”

Of additional consequence to real estate law is the emirate’s system of escrow bank accounts, which was established in 2007 and has since played a key role in stabilising a rapidly maturing market. These trust accounts are most pertinent in their use in off-plan – or pre-construction – properties, wherein they help to mitigate investment risks on both sides of a transaction.

The system has its roots in Law No. 8 of 2007 concerning escrow accounts for real estate development in the emirate of Dubai, and similar legislation came into force in Abu Dhabi in 2016. The law stipulates that developers who market off-plan units must open a dedicated escrow account and appoint a dedicated agent who has been accredited by the DLD. All sums received from purchasers of those units must then be paid into this account and earmarked for that specific project, to be used solely to finance its construction.

The off-plan segment has grown rapidly in recent years and now constitutes a substantial part of the overall market in Dubai. From a buyer’s perspective, the appeal of the arrangement lies in a tendency for upfront purchases to be less costly, as a project’s realisation tends to drive up its price. The development of off-plan sites is also frequently facilitated by payment in instalments, which are typically matched against the project’s progress and provide a monitoring mechanism. The system also acts a useful barometer of market demand and can, to some extent, deter developers from pursuing too many or overly ambitious projects, thus tightening the real estate supply.

According to the text of the law, funds for 20% of construction costs must be deposited in escrow before the holding bank will release the funds to a developer. In reality, and at the holding institution’s discretion, that threshold tends to be higher. At Cityscape Global 2018 – a prominent international networking exhibition and conference on property development in Dubai – Marwan Ahmed bin Ghalita, CEO of RERA, stated, “Most of you know that nowadays we do not accept less than a 50% deposit in the escrow account before we start releasing the money for the developer, and in some projects we raise it to 70%. This is our job, to make sure that the investor money is secure and protected.”

Growth & Crash

Like other real estate sectors, Dubai’s property market has largely moved in sync with the cycles of the global economy. As a maturing market in a small country, it has also been highly sensitive to domestic changes, such as the announcement of major building projects and legislative amendments. This explains in some measure why the November 2013 announcement that Dubai had been awarded the role of host for Expo 2020 generated significant investor interest in the emirate’s real estate sector. As Plumb told OBG, “There’s no doubt that the markets here are very sentiment-led, so if Expo 2020 is seen as a success, with lots of people coming and spending money, then it will also boost the real estate sector.”

The first major event of the 2000s to affect real estate was the 2002 introduction of regulation allowing foreigners to own freehold property in certain areas of the emirate. A healthy economy and an expanding workforce fuelled demand for such holdings, resulting in strong growth in price and volume for much of the decade. However, investor speculation played a role in driving up prices, resulting in double-digit rental growth and frequent rental yields of 10-12%. By early 2008 price growth in prime locations had become unsustainable: in Dubai Marina, for example prices increased by 160% in one six-month period.

Following the financial crisis of 2008-09 the sector remained subdued for several years, with little activity across most segments. Market forces began to change with the introduction of the Real Estate Investment Law in May 2012, which introduced a new structure designed to mitigate the risks of the kind of boom-andbust speculation that had initiated the 2008 crash. By 2013 external events further alleviated the downward pressure on the real estate market: the currency crisis in the Eurozone and the wave of political destabilisation that swept across the MENA region during the Arab Spring burnished Dubai’s credentials as a safe, profitable haven for investment. By the end of the year most real estate segments, with the exception of office sales, had risen by healthy measures above the lows they reached during the 2008 downturn.

Post Crisis

The November 2013 announcement that Dubai would host Expo 2020 also ushered in substantial and ongoing investment in infrastructure and increased confidence in the market, as investors anticipated that the event would deliver a significant boost to the emirate’s economy. Amid the recovery, the Dubai government introduced additional changes, including doubling the land registration fee to 4% and introducing new loan-to-value rules regarding mortgages and down payments to curb speculation and stabilise the market.

Strong growth across property segments returned the market to its pre-crisis highs in the second quarter of 2014. In response to recent regulatory changes, interest among developers shifted towards off-plan sales, which did not require a 25% mortgage down payment, making their deposits more competitive. Moreover, developers began to offer significant incentives to invest in off-plan sites, such as payment plans that extended well beyond a given project’s completion date.

Since 2015 project launches and deliveries have continued at a rapid pace. Demand growth, however, has not kept up with surging supply, as reflected by steady downward pressure on sales and rental prices. Developers have looked to overcome this mismatch by offering smaller, cheaper, off-plan units, as well as a widening range of incentives and payment plans. Alongside softening prices and steep competition, this strategy has pushed the affordable and mid-range segments to outperform most luxury projects, as home ownership has been opened to a wider pool of people. This pattern continued throughout 2018, and authorities like the Dubai Real Estate Institute have considered introducing legislation – such as requirements that designated percentages of new properties be subject to price caps – that would increase the stock of affordable housing for the city’s large immigrant workforce, which has long lent Dubai its competitive edge in the global market.

Capital Sources

Foreigners make up over 90% of Dubai’s population and are involved in a large portion of its property transactions. This consumer base is diverse: according to the DLD, there were 163 nationalities represented among the 21,600 individuals who invested in Dubai real estate in the first nine months of 2018. In sum, these investors – who were predominantly from the GCC, the wider Arab world and South Asia – made 21,174 transactions worth an estimated Dh50bn ($13.6bn). Emiratis registered 4112 investments worth Dh9.4bn ($2.6bn), representing 18.8% of real estate purchases by value and making up the largest share by origin of nationality. Indians were close behind, making 4676 purchases worth Dh8.6bn ($2.3bn), while Saudis followed third with 1882 investments at a value of Dh3bn ($816.6m). UK nationals and Pakistanis rounded out the top five, with the former recording 1761 investments at a value of Dh3.4bn ($925.5m) and the latter registering 1851 investments worth Dh2.3bn ($626.1m), followed by China, Egypt, Jordan, Canada and Russia.

Among the member states of the GCC, 4904 nationals of five countries made 6681 transactions worth 13.7bn ($3.7bn). Nationals of 16 countries throughout the wider Arab region made an additional 3607 transactions worth Dh6bn ($1.6bn). Jordanians and Egyptians ranked highest among non-GCC Arab investors, respectively making 644 transactions worth Dh1.2bn ($326.6m) and 719 investments worth Dh1bn ($272.2m), followed by spending by Iraqis and Lebanese. Chinese investments were valued at Dh1.7bn ($462.7m) and ranked sixth worldwide, which marked a significant increase from previous years and moved them from eighth on the list in 2017. Numerous factors are likely to accelerate Chinese investment in the near term, including a growing population of high-net-worth nationals; recent changes allowing Chinese citizens to apply for visas on arrival in the UAE; and the servicing of 13 Chinese cities by direct flights to Dubai. Beyond this, Dubai is seeking to become an important node in China’s Belt and Road Initiative – a central vehicle of China’s burgeoning foreign policy, especially with respect to trade and foreign investment – which is likely to spur further Chinese investment in the emirate.

Major Developers

Dubai boasts some of the most highly valued and profitable developers in the region.

Construction Week’s “Top 50 GCC Developers 2018” list, which assessed builders by recent deliveries, current plans and long-term strategies, included 22 Dubaibased firms, among them Emaar, Nakheel, Damac, Dubai Properties and Mag Property Development.

Emmar counts in its property portfolio the Burj Khalifa, the world’s tallest building; the Dubai Mall, the world’s largest shopping centre; and the Dubai Marina, the world’s largest man-made marina. The firm itself is also one of the largest property developers in the world: in 2018 Forbes ranked it 29th globally among real estate developers, based on an amalgam of sales, profits, assets and market value. Moreover, in addition to its large flagship projects, over 20% of all freehold residential properties within Dubai are located in communities that were developed by Emaar, according to a September 2017 analysis by JLL.

The firm has several additional, prominent projects in the pipeline. The residential Arabian Ranches will include a golf course and the Dubai Equestrian Club, and is expected to be completed between 2019 and 2021. The 6-sq-km Dubai Creek Harbour, which Emaar is developing in partnership with Dubai Holding, will include several hospitals and schools, luxury residences for 200,000 people and Dubai Creek Tower, which, when completed, will surpass Burj Khalifa as the world’s tallest structure. The firm is also involved alongside Dubai Aviation City Corporation in Dubai South, a mixed-purpose development that will encompass an FZ, residential districts, leisure and commercial facilities, and the central venue of Expo 2020. The site is in the vicinity of the Dubai World Central, which is expected to become the world’s largest airport in terms of both passenger and cargo volumes by the mid 2020s.

Other developers of note include Nakheel, which counts among its own flagship projects the artificial island archipelagos Palm Jumeirah, Palm Jebel Ali and The World, as well as mixed-use developments spread across the residential, hospitality and leisure sectors; and Damac, whose luxury residential property Damac Hills is one of the few developments to have bucked the recent trend of falling prices in the real estate market.


Cityscape Global, a development exhibition regarded as an assessment of the sector’s health, hosted only a few launches in 2018, as builders focused on marketing existing stock. According to JLL, transfers decreased across the board in the third quarter of 2018: apartment sales, apartment rentals, villa sales and villa rentals were down, respectively, by 2%, 3%, 2% and 0.1%. Declines between the third quarters of 2017 and 2018 were steeper: apartment sales fell by 7%, apartment rentals by 10%, villa sales by 8% and villa rentals by 9%.

Despite these declines, observers expect the visa and ownership reforms announced in 2018 to help reverse this trend. There is also evidence that investments in infrastructure could redound to the segment’s benefit: between the first quarters of 2010 and 2018 – roughly covering the lifespan of Dubai Metro, which opened in late 2009 – prices of properties built within a 10-minute walk of the city’s Red Line have risen more than twice as quickly as prices in the wider market, 58% against 28%, according to an analysis by Knight Frank.

JLL estimated that Dubai had 513,000 units of residential stock at the close of the third quarter of 2018, up 16,000 units from the end of 2017, with a further 23,000 units scheduled for delivery by the start of 2019. Of that total, 95% were apartments, with the two largest individual properties, Damac Heights in Dubai Marina and Burj Vista in Downtown Dubai, each comprising 640 units. An additional 96,000 are scheduled to come onto market by the end of 2020, though it is expected that many of their delivery dates will be pushed back.

Among the handful of launches at Cityscape, the deliveries of two properties, La Mer and Madinat Jumeirah, were announced by their respective developers, Meraas and Dubai Holdings. Both entities are categorised as freehold, despite being located in areas of Jumeirah that were formerly restricted to leasehold sites. Further announcements of this sort, which began in May 2002 with the issuance of a decree allowing foreigners to buy freehold land, are expected in 2019.


In order to compete in a crowded segment, office landlords have offered tenants a range of attractive terms, including rent reductions, refurbishment and fit-out contributions, free parking and even rent-free periods. As is the case in other locations, interest has surged in Dubai in flexible offices that can be leased for less than a year, particularly within the emirate’s FZs. JLL reports that as of November 2018, 55 projects were leasing roughly 70,000 sq metres on this basis, though this amounted to less than 1% of total rented offices. Regulation of these shorter-term leases is stricter in Dubai than in some markets, and there is an expectation that any relaxation of these rules would lift the recent trend. As a result of these pressures, office rents have recently fallen by double-digit rates y-o-y.

The market for premium office spaces sought by leading and expanding businesses remains highly competitive among suppliers and is favourable to tenants. Rents for prime offices were down 1.4% y-o-y in the first quarter of 2018, despite a segment-wide vacancy rate as low as 1%. This downward pressure has been exerted by relocation and consolidation trends among renters, coupled with a shortage of prime stock, though supply is projected to continue expanding through 2020.

One result of these dynamics is that some major corporations are seeking to build and hold their own properties. HSBC invested $250m to build a 22,000-sq-metre property in Downtown Dubai; the facility, which will become the bank’s new Middle East headquarters, opened in January 2019, adding to recently completed projects in Dubai World Trade Centre’s One Central, the Opus in Business Bay and the Lynx in Dubai Silicon Oasis. JLL’s report for the third quarter of 2018 projected the delivery of an additional 138,000 sq metres by the end of 2018 through the first phase of the innovation hub at Dubai Internet City, Gate Village 11 at the Dubai International Financial Centre and the Amesco Tower at Jumeirah Lake Towers. Of that trio, only the Amesco Tower had not been completed by the end of 2018.


The retail landscape is similar to that of the office sector. In a largely saturated market with a considerable number of projects under way, rents have softened and vacancies are on the rise. Malls, which house a large part of Dubai’s retail activities, have been especially affected: the vacancy rate rose from 12% to 16% between the third quarters of 2017 and 2018, while rents for super regional and regional malls fell by around 19% and 7%, respectively. To counteract this tendency, landlords and developers frequently offer numerous perks, such as more flexible leases, contributions to capital expenditures and discounted rents.

At the start of the fourth quarter of 2018, total retail market space stood at 3.7m sq metres. Few major projects were delivered in the first three quarters of 2018, with the exception of the 5000 sq metre space at Badrah Pavilion Community Centre, in Nakheel’s Jebel Ali Waterfront. However, JLL projected the addition of 350,000 sq metres by the end of 2018, encompassing the Pointe on Palm Jumeirah, the Souq at Culture Village and the Night Souq on Deira Island. Moreover, the firm expects a further 1.1m sq metres to be added to the market by the end of 2020, with most of these foreseen deliveries located in super regional, large-scale malls. With so many large mall projects in the pipeline, smaller malls are likely to continue feeling the squeeze on rental incomes, as retailers take advantage of the competitive rates offered in larger facilities.

Leisure & Hotels

With some 25m visitors expected to visit Expo 2020, the hotel and leisure sector is gearing up for accelerated activity. According to the Department of Tourism and Commerce Marketing (DTCM), Dubai received 14.3m visitors through November 2018, up from 14.24m during the first 11 months of 2017, with significant increases of visitors from China, Russia and Germany. Moreover, even as the supply of available rooms grew by 7% over the same period, from 114,000 to 107,000, the occupancy rate and average daily rate were only down marginally, from 77% to 76% and Dh483 ($131) to Dh456 ($124), respectively. The overall number of hotel rooms is set to rise considerably in the near term, largely in anticipation of the increasing influx of attendees to Expo 2020, with JLL – whose count of “quality” hotel rooms differs from the figures given by of DTCM – projecting 22.4% growth between the end of the third quarter of 2018 and the end of 2020, from 88,100 to 108,000.

Meanwhile Dubai’s stated target of hosting 25m annual tourists by 2025, equal to the number of visitors expected for Expo 2020, should allay concerns that the expo itself will create an oversupply. Indeed, the event is central to this longer-term goal, as it is expected to provide significant global exposure. The city is already a competitive tourist destination: it ranked fourth in MasterCard’s 2018 Global Destination Cities Index, having hosted 15.8m international, overnight visitors in 2017, behind only Bangkok, London and Paris. Moreover, it ranked first by some margin in terms of tourist spending, at $537 per tourist per day and $29.7bn overall, well ahead of Makkah, which came in second at $18.5bn.


Dubai finds itself in an interesting position approaching the opening of Expo 2020. The city is highly competitive with leading global tourist destinations, and there is reason to believe that visitor real estate will expand rapidly in the near future and sustainably in the longer term. Meanwhile, inward migration has continued to rapidly expand the emirate’s labour force, and the residential property market has needed to mature quickly to adjust to shifting demand.

In the short to medium term recovering oil prices and Expo 2020 will play roles in boosting the real estate sector. More important to the market’s prospects will be demographic change and the nature of long-term economic growth, as guided by Dubai’s economic diversification. The IMF forecast Dubai’s GDP to grow by 3.3% in 2018 and 4.1% in 2019, while DSC has projected that the emirate’s population is to grow from 3m to 5m over the decade 2017-27. These trends should help to resolve the sector’s recent oversupply problem.

Moreover, developers recognise that meeting demand will require shifting focus from luxury developments to affordable and mid-range accommodation. As John Allen, director of valuation and advisory at Asteco’s Dubai office told OBG, “The reason developers are happy to continue with projects when there is already over supply is because they are betting on the future and Dubai’s ability to attract a growing workforce.”

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The Report: Dubai 2019

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