Dubai is expected to move up the transparency ladder provided it introduces performance benchmarks and dispute resolution mechanisms, a property expert said yesterday.
It is expected to reach "Transparent Tier" (Tier Two) in 2010 from its current "Semi-Transparent Tier" (Tier Three) ranking given by Jones Lang LaSalle.
"Dubai needs to improve overall transparency levels by introducing property performance indices, make available more information, introduce dispute resolution mechanism and [offer] indirect ways of investing in real estate markets. If they do so, we expect them to be in Tier Two in 2010," Craig Plumb, Head of Research (Middle East and North Africa) of Jones Lang LaSalle, told Emirates Business.
He was speaking after releasing the Real Estate Transparency Report 2008 for the Middle East and North Africa (Mena).
Dubai is taking the step to meet at least one of the demands. This paper had earlier reported that the emirate would set up a real estate court in September.
Even on transparency, there's strong movement.
According to the LaSalle report, Dubai has registered the greatest improvement in real estate transparency of any market worldwide over the past two years. "One of the amazing thing of Dubai is how quickly it has developed. If you look at London, Singapore or Hong Kong, they have taken decades to mature. Dubai has reached the maturity curve fast compared to any other country," Plumb said.
Besides Dubai, Abu Dhabi and Bahrain are also placed in the Tier Three, with the report saying that the respective governments and regulatory authorities having a clear understanding of the importance of improving transparency to enhance their competitiveness.
Blair Hagkull, Managing Director of Jones Lang LaSalle, Mena, said: "Transparency is necessary for evolution of the market and a catalyst for change. More transparent markets are characterised as being less risky, having more sales activity and occupier demand, greater foreign investment and less volatility,"
Dubai has been at the forefront of the Mena region's reform processes, in terms of both broader economic initiatives having pioneered the concept of free trade zones from the mid 80s and more specifically in its real estate sector. Its position in the global ranking has improved from 46th in 2006 to 32nd in 2008 with its status being elevated from a "Low Transparency" (Tier Four) market in 2006 to Tier Three market in 2008 – one of only eight markets globally that moved up a full tier since 2006.
Dubai has achieved a similar transparency score to Russia, and is ahead of the other three major emerging global markets such as Brazil, India and China with all these markets sitting in Tier Three. Improving the transparency of the real estate market has been recognised as an essential element of this overall reform process.
While significant progress has been made in improving transparency and opening up the real estate market in recent years, the fact that Dubai still sits as a Tier Three illustrates there is room for further improvement.
The reform process remains very much a "work in progress" that is likely to continue for some time to come. Dubai has been the world's most improved market between 2006 and 2008.
The report defines transparency as an indicator of the openness or ease of doing business in any particular real estate market. A number of different factors contribute to market transparency; these include the presence of investment performance indicators, quality of market information available, presence of listed vehicles and other structures providing alternatives to direct ownership of real estate.
According to Jones Lang, the freehold law, which was announced in 2002 (amended and implemented in 2006), is one of the single most important factors driving the growth of the Dubai real estate market. The law not only opened up the market in the emirate, but also led other markets in the region to implement similar measures to stimulate investment in their real estate markets. The volume of sales activity in the Dubai real estate market has skyrocketed in recent years, with much of this driven by foreign investment. The freehold law has been a key factor in driving the expansion of Dubai's real estate market.
Besides Egypt and Saudi Arabia rank among the world's 10 most improved markets over the past two years, although both these markets remain in Tier Four (Low Transparency). Most other Mena markets remain in the Tier Four.
While improvements in their overall business environments have been recorded, there have been few significant specific breakthroughs with respect to real estate transparency in these markets.
The Mena region also includes a number of Opaque (Tier Five) markets, such as Algeria, Syria and Sudan. Although these markets remain poorly developed, they have attracted some interest from within the region.
While some improvement can be expected, transparency is likely to remain below that of the GCC.
Flexible environment Bahrain is the second-highest ranking Mena market in the real estate transparency index.
It is ranked 47th out of 82 markets in the global ranking and is classified as a "semi-transparent" market.
Bahrain has a flexible regulatory environment, which is reflected in its 19th position in the Index of Economic Freedom and 46th position in the Transparency International Corruption Perceptions Index.
Abu Dhabi's initiativesThe capital of the UAE ranks 54th out the 82 markets globally and is classified as a semi-transparent market.
Recent initiatives have shown that the Rulers of Abu Dhabi are seeking to improve this position, says the report. Central to this vision is the recent launch of Plan Abu Dhabi 2030, an urban master plan that clearly articulates the framework for the long-term growth and seeks to provide increased certainty to developers and investors.
The report states that Abu Dhabi continues to impose restrictions on foreign ownership and limits competition in key economic sectors. This is reflected in Abu Dhabi's relatively low proportion of foreign direct investment coming into the UAE.
Abu Dhabi was the first emirate to introduce laws specifically designed to establish a Land Registration Department and to confirm who can own property in certain areas in the emirate. The creation of a public Land Registration Department is fundamental to property ownership and dealings in property.
Since the first property laws were passed, further rules and regulations to clarify and implement the original laws have been issued in 2008 with more changes expected soon.
Among the effects of the first implementation regulations is the creation of a body to govern the real estate market, similar to the function of Real Estate Regulatory Authority in Dubai. It is expected that Abu Dhabi will implement specific strata laws and escrow laws, requiring developers that are selling off-plan units to pay sale proceeds into a designated escrow account during construction.
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