14 March 2009

Unified UAE laws must to draw investors

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Harmonising real estate regulatory laws across the UAE would attract global investors and increase transparency, according to a real estate investment and development information network.

“Common regulations across all the emirates would definitely benefit the country as they would make it easy for international investors to invest here,” Ahmet Kayhan, CEO of Reidin.com, told Emirates Business in an exclusive interview.

“This would help to bring a number of international investors into this part of the world and create more transparency in the country. Owing to the federal nature of the UAE it is understandable that every emirate has its own set of rules. However, common regulations are possible and would be beneficial,” he said.

How does Dubai stand in terms of transparency?

There are two kinds of transparency, legislative and technical. From a legislative perspective Dubai, especially after the setting up of Real Estate Regulatory Agency (Rera), has become one of the top three transparent markets in the world. On the technical transparency level, again after the setting up of Rera, Dubai is one of the top five markets. Technical details such as how many projects have been launched and the progress that has been made on construction are updated on Rera’s website. Abu Dhabi, as well, is trying to create a transparent atmosphere and is seeing this time of crisis as an opportunity to focus on that aspect and fill in the gaps in the real estate sector.

Are real estate companies in the UAE transparent when it comes to giving data? How much trouble do you have collecting data?

Not all real estate companies in the UAE are transparent and the market is challenging at the moment. In Dubai there is a strong need for statistical indices. At the federal level an agreement has been signed with a Swedish institute to put all the know-how in place and the government is already putting a team together to set up the structure. Reidin.com is an online information service that is dedicated to meeting the requirements of real estate professionals interested in developing economies. We currently offer three information products: REBIS, or Real Estate Business Information Service in conjunction with Rera, DUBAIFocus in conjunction with Dubai Land Department, and INDEXFocus in conjunction with an automated valuation model developed in-house.

Why is Dubai ranked so high for transparency?

In any country where there is no tax system, corporations, institutions and individuals do not feel an urgent need to be transparent. When you consider Eastern European countries, which have tax systems, they have 100-year-old statistical data. But Asian countries, except for China which has a socialist system, do not have proper data and statistical information systems.

What makes Dubai transparent from a global perspective?

Dubai, from a registration perspective, is very transparent. For example, Rera’s website, rpdubai.com, is always updated and is also very transparent.

Are properties in Dubai and the rest of the UAE selling at ‘fair value’ or have they fallen below it?

I do not believe that in real estate there is any fair value. Fair value comes into play when supply meets demand. The value of prices in Dubai was never fair and was mostly overpriced. Right now real estate prices are down to 2006 levels. You can see sales prices going down on a monthly basis. Rent costs, however, have been more stable. Although real estate prices are down the rental yield is going up. It is time for the occupiers, the real estate professionals who rent properties, to invest in real estate as there is a huge opportunity at the moment.

Has inflation and global recession affected the local and regional real estate sector? How far do you believe it will affect the industry in 2009?

There are two kinds of inflation, demand inflation and supply inflation. Demand inflation is when you have more money in the market and more people so prices are going up, similar to what we saw in Dubai up to mid-2008. Supply inflation can come from factors such as high commodity prices, construction prices, building material prices, etc. Essentially inflation is not a bad thing if it is driven by rises in property prices, which is good for longer-term market values. In that respect, inflation and the global recession will have an impact on the real estate sector. For 2009, if you consider real estate prices as the biggest driver of inflation in Dubai, then inflation is expected to drop, especially as we are seeing the cost of food, construction materials and oil all going down.

What is the total value of projects launched in the UAE last year?

According to the data we have collected, the total value of projects launched in 2008, including projects awarded, projects under construction, projects on hold and those at the design, execution and planning stages, is $218 billion [Dh800bn]. The total value of projects executed in 2008 was $35bn.

Do you believe this will be a year of mergers and acquisitions?

This year will definitely see mergers and acquisitions. According to a study we conducted, the UAE is in the tier three category. This means the market is small for the number of players it carries. From that perspective there will definitely be mergers.

Rent or buy, which would you recommend in view of today’s market conditions?

For investment purposes I would definitely recommend waiting until the end of the first quarter before making a decision. For living purposes there is a huge opportunity to buy, especially in those areas where prices have dropped considerably. If rents go down there will be increased competitiveness in the market and a certain balance of supply and demand.

Will Dubai see a second boom in the property sector this year?

A second boom can be expected to start just after September and the sector will definitely come back strongly as the emirate and the Gulf have attracted huge amounts of wealth. We have seen countries such as India, Iran and Saudi Arabia recording strong gross domestic product growths. These countries have seen income levels going up considerably in the past three to four years. This will happen in Dubai as well, we will definitely see the sector surge once again. Dubai is a small market and the demand around this area is too big. Dubai is an interesting market that has a lot of international elements attached to it.

The Eibor rate has fallen but mortgage rates remain high. Do you see them falling this year?

Interest rates continue to be high in the market as the UAE Central Bank wants to make sure there is enough liquidity in the banks. The cost of lending is higher for the banks today because of the risk factor so interest rates are not going down. Most borrowers took out mortgages with high loan-to-value ratios and that is why the risk is high.

PROFILE: Ahmet Kayhan, CEO, Reidin.com

Ahmet Kayhan is the co-founder and CEO of Reidin.com. Prior to setting up the company he was regional manager of ISI Emerging Markets, a Euromoney Institutional Investor company responsible for the Mena region, and global business manager of IFIS

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