Renting still the best option for most

Complicated laws governing expatriate property ownership and mortgages discourage would-be investors and homeowners.

With rents falling and mortgage rates remaining high, ownership is not an attractive option for many.

Nearly two years after the start of the financial crisis and property slowdown, the vast majority of the UAE's residents do not own homes here, according to a survey of attitudes about the UAE's economy.

The numbers show the potential for a huge growth in the number of owner-occupiers in the country, especially in the two biggest property markets, Dubai and Abu Dhabi, analysts say. But a lack of confidence in property laws may be holding up the market. Eighty-nine per cent of respondents in a YouGovSiraj survey commissioned by The National said they did not own homes in this country, while 60 per cent of them said they owned property abroad.

The growing body of property laws in Dubai and a lack of regulations in other emirates appeared to be a major impediment to investment in property. Only 17 per cent of the people surveyed agreed that recent changes in property laws had "increased my confidence in the UAE property market". Thirty-four per cent said the changes had reduced their confidence; 49 per cent said they did not know what impact the changes had; and 22 per cent agreed that ownership laws "encourage foreigners to invest in the UAE". A third said the laws did not encourage investment, while a quarter said they were not sure and 19 per cent said they "don't understand the laws".

"It shows there is certainly room for growth, with a low number of owner-occupiers," says Ron Hinchey, a partner at the consultancy Cluttons. "But it also highlights how everything goes back to property laws. Part of those laws is regulating the purchase of a property and a buyer's rights. Another part is just having the right to live in those properties, meaning visas. Without clear laws, it is difficult for banks to lend to property buyers."

Dubai became the first Emirate to allow foreigners to own property freehold in 2002, leading to speculative frenzy that ended in 2008 with the onset of the international credit crisis. The property consultancy CB Richard Ellis says prices have dropped between 40 and 70 per cent since their peak in 2008, depending on the area in Dubai. Prices in Abu Dhabi have dropped by about 50 per cent. Meanwhile, developers in Dubai are completing dozens of towers. A recent report from Bank of America Merrill Lynch said prices would drop another 15 per cent because of the continuing growth in available space. "Even if all qualifying expatriates from Abu Dhabi and Sharjah relocated to Dubai tomorrow, we estimate that there would still be 44,000 vacant units in 2010," the report said.

The Dubai Land Department and the Real Estate Regulatory Agency (RERA), a unit of the department, tried to stem the rampant speculation occurring in 2008 with a raft of new laws, but the two entities have since issued many complicated revisions of these initial laws. Some of the changes have changed the original meanings of elements of the laws, lawyers say. "With such widespread and profound changes taking place over a relatively short period of time, it is inevitable that certain sectors of the community will take time to fully appreciate the laws," said Sydene Helwick, a partner at Al Tamimi & Company. The law firm has consulted for RERA and the Land Department.

Property developers have focused on convincing UAE residents to buy property. Several developers, including Emaar Properties in Dubai and Sorouh Real Estate in Abu Dhabi, have launched "rent-to-own" schemes in which tenants can opt after a period to apply a portion of their rent payments towards purchases. This has so far not resulted in a distinct pick-up of property purchases in an industry that has been experiencing a stark lack of sales for a year and a half.

Matthew Green, the head of research at CB Richard Ellis, says that without greater confidence among investors and banks that a recovery will be a long-term affair, a recovery will be a slow process. Loan-to-value rates - save for a few exceptions - average about 65 per cent. This means that a family that expects to stay here for five years and is considering a Dh2 million (US$545,000) apartment purchase will have to pay about Dh700,000 up front and make mortgage payments at rates that are averaging 8 per cent across the Emirates.

"There is still too much uncertainty, both with the number of laws and generally within the market," Mr Green says. "There is a lot of growth potential, depending on things like visas for homebuyers, access to finance and more user-friendly laws." Nick Clayson, the head of property in the Middle East for Norton Rose, an international legal practice, said buyers in the UK, the US and Australia would be similarly confused. Many buyers in the Emirates often made hasty decisions leading to many poor contracts and a jaundiced view of the law here.

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