Relaxing the rules over foreign owners may hit free zone rents

Rents in economic free zones may drop if legislation being considered that would relax foreign ownership requirements elsewhere in the country is passed. Free zones across the UAE have proved an effective tool in attracting foreign companies, which have been drawn by the promise of tax breaks and 100 per cent ownership of businesses they establish.

At the moment, foreign firms setting up outside free zones must have an Emirati as a sponsor and are limited to a maximum 49 per cent ownership of their businesses. Because free zones eliminate those requirements, commercial rents there have traditionally been higher than elsewhere in the country and have not fallen as much as average rents in the wake of the financial downturn, property experts say. But the free zones' special status could be threatened by laws under consideration that could extend the entitlement to 100 per cent foreign ownership to the entire UAE.

Ian Albert, the regional director of the property consultancy Colliers International, said: "Especially as companies look more at their bottom line I can envisage that some of the benefits of free zones at the moment may count for less and we may see a greater level of parity between free zones and non-free zones." However, free zones were still likely to command higher rents than elsewhere because of easier procedures on administration issues such as visas and licensing and the "cluster effect" benefit for firms from being located next to similar companies within the same industry, Mr Albert said. A draft industry law, to be submitted to the Cabinet within two months, would allow options for complete foreign ownership by industrial businesses established outside free zones, Sultan al Mansouri, the Minister of Economy, said last week. The law aims to encourage hi-tech firms to set up operations as the Government seeks to expand the UAE's industrial base, an integral part of its economic diversification strategy. A separate proposed law to provide legal protection for overseas investors could also relax restrictions on foreign ownership, Mr al Mansouri said.

That draft law, which is aimed at boosting foreign investment, is expected to be complete before the end of the year. A total of 34 free zones are scattered across the UAE, with a number of new free zones planned in Dubai. The Jebel Ali Free Zone became the first to open in the UAE, in 1985, with just 19 firms initially. Today it accommodates more than 6,000 companies from more than 110 countries.

Despite changes to the law, the Jebel Ali Free Zone was confident it would continue to entice foreign firms, as proven by its recent expansion to include facilities for light industry, a spokeswoman for the zone said. [e-mail]