On June 28, the UAE government approved plans to extend the residential visa from six months to three years in a bid to boost the ailing real estate sector. While the new visa is seen as a positive step forward, analysts say other factors weighing down the market are likely to continue to impede demand for the short term.
The decision to extend the residential visa for foreign home buyers was part of a raft of measures taken by the government to underpin economic growth. Property visas have been a controversial issue in the UAE for many years, as investors were often given conflicting information on the length of visas they would receive upon the purchase of a property.
In 2009, the government decided to address the confusion by decreeing that visas for foreign home buyers would be valid for only six months. The law required the visa holders to leave the country and return for renewals, and pay about Dhs2,000 for each renewal.
The government also set a minimum property price of Dhs1m for eligibility for the visa. Many analysts believe the implementation of this law further deepened the Dubai’s real estate slump that saw property values in the emirate fall by more than half since peaking in 2008.
Qatar seen as catalyst
Business leaders in the UAE have been urging the government to revise the visa law to help kick-start the market, and new hope emerged earlier this year when Qatar liberalised its rules on foreign ownership of property.
By deciding last week to extend the visa to three years, the government has taken a positive step to support the market, analysts say, but they note that many details of the new law have yet to be revealed.
“Talk of the three-year visa has been in the market for some time and is admittedly a step in the right direction,” said Chet Riley, an analyst with Nomura Securities. “Ultimately the re-sale market should strengthen and a three-year hold period should protect capital somewhat, especially where rents have settled.”
Elaine Jones, CEO of Asteco Property Management, agrees that the new law is welcome news for the property market. “We see the new visa law as being an extremely positive step for those who have already purchased property and as an incentive/confirmation to those who have stepped back from purchasing due to the issues surrounding the investor visa and the freedom to reside in any property they may buy,” she told AMEInfo.com.
Details need to be ironed out
However, both experts cautioned that the requirements of the new law have yet to be revealed. “Before we take the leap of faith however, there are no details beyond the headlines – this will be seen positively and the market will react accordingly, but there is a lot of work to do to shore up confidence across the direct real estate market,” Riley said.
“We assume the same limitations apply (ie, minimum spend of Dhs1m, passive income of Dhs10,000/month, which was a red-light for many prospective purchasers),” Riley said. “There are a number of other conditions that must be met, potentially making it a relatively onerous visa in our view, versus other free zone options.”
Jones noted that that the minimum property value of Dhs1m for properties in the UAE could be challenging for some buyers as prices have dropped considerably over the past few years.
The experts also predicted that market dynamics – namely oversupply – will continue to impede investor sentiment, thus curbing demand in the short to medium term.
Still, the new requirements could mark the beginning of a gradual turnaround in the market. “Ultimately the re-sale market should strengthen and a three-year hold period should protect capital somewhat, especially where rents have settled,” Riley said. “Real estate in the UAE is still an opaque market and regulations are never locked in stone, as history has proven, but three years gives some stability to a finely balanced market in our view.”