Home > Economic Development > UAE changes could lead to growth, rising property values

UAE changes could lead to growth, rising property values

The UAE made changes to how it buys and sells government real estate, responding to reports that Dubai real estate values are expected to drop between 10 and 20 percent.

The gulf nation continues to reel from the global financial fallout as it canceled 217 real estate development projects during the past two years — about half of the nation’s proposed projects.

But Sunday’s changes in how the state deals with real estate should give the nation more financial stability and could lead to growth.

From ArabianBusiness.com:

Legal amendments, announced Sunday, will allow DREC to sell off state-owned real estate and allow the agency to sue and be sued in dealings with third-party players.

By consolidating government real estate and planning into a large commercial body, Dubai will be able to build more for less money due to economies of scale. Additionally, bringing asset management out of government hands and into private control will enable greater borrowing and investment because corporations have more fiscal flexibility than governments. Corporations are more adept at handling debt, and the UAE has a bit too much of that right now to take on any more. The unwillingness to take on more debt will stall growth, so transferring some of the state real estate market to a private corporation makes some sense.

Property transactions fell to $32.5 billion at the end of last year from $41.6 billion the previous year — a 21.9 percent drop.

Of course, the  Hesham Abdullah Al Qasim, vice president and chief executive officer of DREC, already has said it will not sell government properties.

“While DREC is completely into the leasing market, and the amendments to the law now allow selling government properties, there is, however, no intention to sell any of these assets or even to go to the stock market,” he said.

I would hope this is just political posturing by the DREC so as not to alienate its new government partners. Analysts said the changes will help stimulate “sound urban planning, financially viable development and generally better economies of scale,” and will give government “an opportunity to strip off excess fat and create individually-focused business lines that are more commercial in their approach.” But that’s only if DREC takes full advantage of the changes.

The hope here is that better urban planning can elevate property values. In general, property values in poorly planned areas — such as rural communities or in an aging, blighted city center — are lower.

The UAE real estate market is in shambles. Office rents in Dubai and Abu Dhabi have dropped 69 percent and 45 percent, respectively. Residential prices in Dubai fell 56 percent from the fourth quarter of 2008. Abu Dhabi residential prices have declined 45 percent since then.

Getting more economic development through state-led urban growth could restore property values. That’s the goal here.

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