Wide-ranging reforms aimed at regulating Abu Dhabi’s real estate sector and encouraging best practices look set to lift investor sentiment despite the challenging regional economic climate.
Abu Dhabi introduced its new property law at the beginning of 2016, with a view to improving accountability and transparency across the industry.
The regulatory overhaul, which followed calls for greater protection for buyers, will likely be supported by further legislative changes covering building standards.
Clarification and protection
Under the new legislation, a comprehensive register of property interests, providing data on all of Abu Dhabi’s projects, developers and service providers, will be set up. The new rules also set out the rights and obligations of all parties, and detail the registration of property interests.
Supervision will also be stepped up for projects at the off-plan stage in a bid to strengthen project governance and increase protection for investors through mechanisms like escrow accounts.
Significantly, the new regulations provide for multi-owner or strata projects by making it easier for developments to be divided according to project areas.
In addition, the rules formalize Abu Dhabi Municipality’s right to cancel licenses and take action on failing projects. A separate provision allows investors to cancel purchase contracts if a developer is found to be in material breach of the agreement.
The reforms have been welcomed by the real estate industry, with experts optimistic that increased transparency and accountability will, in turn, generate higher levels of confidence and sustained demand.
“The property law will lessen the impact of potential cyclical economic factors such as oil price movements on real estate prices, creating a less volatile environment which should encourage continuous investment and growth of the sector,” Chris Taylor, CEO of real estate financial services provider Abu Dhabi Finance, told media in March.
Rental returns slowing
However, while confidence in the market looks to be on the rise, earnings in the rental segment are flattening out.
The slowing of the regional economy, combined with an oversupply of residential units, pushed down rents across most segments of the property market at the beginning of the year, according to online real estate portal Bayut.
Average apartment rents fell by 5% month-on-month in January, the firm said in its latest study, though dips varied according to unit size and location. Demand remained solid in prime areas such as Al Reem Island, Al Raha Beach, Al Reef, Al Ghadeer and Saadiyat Island, Bayut noted.
Rental returns have felt the weight of a rise in the number of vacant properties. Official estimates suggest that 37% of available residential units stood empty as of mid-February. Abu Dhabi will be looking to the new regulations to help reduce the figure to a more manageable 8% by 2020, according to Abdullah Al Baloushi, director of the land and property division of Abu Dhabi Municipality.
While tighter liquidity levels are also expected to exert downward pressure on Abu Dhabi’s property market this year, Bayut expects the sector to continue to benefit from the emirate’s ongoing development as a business and innovation hub, which in turn should keep attracting human capital.
Construction standards in the spotlight
Further reforms under development, aimed at reinforcing building standards, are expected to support the recent regulatory overhaul.
The review comes after flooding in parts of the emirate in mid-March exposed structural weaknesses in some buildings.
Abu Dhabi Municipality received more than 850 reports of property damage and flooding from the heavy storms, prompting a commitment from the National Emergency Crisis and Disaster Management Authority to tighten building regulations and inspection practices.
Although these and other reforms reflect a maturing in Abu Dhabi’s property market, Matthew Green, head of research and consulting for the UAE at real estate agency CBRE, said the stricter regulations could impact prices.
“Whilst the finer details remain unclear, more comprehensive safety checks and stringent measures could have obvious implications for the construction industry, both in terms of time and cost of development,” he told media last month.
Oxford Business Group