The City Of Abu Dhabi
Your next international investment hotspot
The capital of Abu Dhabi is the largest of the United Arab Emirates’s (UAE) seven member emirates as well as the capital and second most populous city in the UAE, with the most populous being Dubai. However, According to UAE’s leading property portal Bayut.com, however, Dubai’s real estate market continued with stable pricings till July 2015, except for the high-end market. Abu Dhabi, on the other hand, had both rental returns and prices in positive growth rates on the back of heightened demand and controlled supply.
Without a doubt, the city’s rapid development and urbanisation – coupled with the relatively high average income of its population – have transformed this buzzing capital into a large and advanced metropolis. Today, the city is the country’s centre of political and industrial activities as well as home to a major cultural and commercial centre. In fact, Abu Dhabi accounts for about two-thirds of the estimated USD400 billion booming economy!
REAL ESTATE MARKET OVERVIEW
In the latest report by Jones Lang LaSalle IP, Inc., it was recorded that following the 2013-2014 market recovery, Abu Dhabi’s real estate market in Q2 2015 saw steady growth across all asset classes. Nonetheless, due to the recent decline in oil prices that have affected the oil sector as well as government spending, it is no surprise that the pace of demand growth and market sentiment should wind down. While short term supply remains under control, the extent to which stable market conditions will continue would very much depend on the Government’s futurespending plans.
Prices for the residential sales market have remained stable over Q2 2015, but there has been continued downward pressure on transaction volumes due to the decline in sentiment in spite of developers successfully launching new products. The rental rate for Abu Dhabi residential properties have remained stable in this quarter due to limited demand growth, but vacancies remain low in high quality, well-located schemes.
The office demand in Abu Dhabi remains subdued due to contraction in some sectors, especially a slowdown in the oil sector and government infrastructure investment. In spite of this, Grade A office rents have remained stable due to minimal vacancies in quality stock. Further office completions throughout the year are expected to increase the market-wide vacancy rate, but with Grade A rents being upheld.
By July 2015, around 2,397 residential units have entered the market while another 4,200 are expected to be completed by the end of this year. Some of these new units may include The Wave and Hydra Avenue on Reem Island, Amwaj 2 in Al Raha Beach, The Views in Saraya and C59 in Rawdhat. Even after the mentioned deliveries, the residential stock would only stand at 244,000 units, which is considered limited in the face of the ever-increasing work force in the UAE’s capital city.
Although 2015’s supply represents a 2.9 percent rise in total housing stock of Abu Dhabi, it is still the lowest increase the emirate has experienced in the past five years, making it an aspect that is likely to drive the prices and rents upwards in popular localities like Al Reem Island, Al Reef, Al Raha Beach, Al Ghadeer and Saadiyat Island.
What’s more, the Government has been making successful endeavours in bringing Chinese investors on board by arranging road shows and similar awareness- and investment-boosting activities. Apart from that, the announcement of a real estate regulatory body similar to Dubai’s Real Estate Regulatory Authority (RERA) and new regulations regarding Escrow Accounts, Strata Law/Owners Associations, Land and Property Registration as well as the
licencing of real estate companies have also played a huge part
in raising investor morale vis-à-vis the emirate.
ABU DHABI GLOBAL MARKET
According to the largest non-affiliated law firm in the Middle East, Al Tamimi & Co., the Abu Dhabi Global Market (ADGM) has published a range of regulations that apply to all those operating and owning property on Al Maryah Island, including Real Property Regulations and Strata Title Regulations.
With effect from their publication on 14 June 2015, the Property Regulations and the Strata Regulations govern property matters within the ADGM, occupying the whole of Al Maryah Island and has been designated as the financial centre of Abu Dhabi. Al Tamimi & Co. also stated that the Property Regulations are significantly different to the property laws that apply elsewhere in Abu Dhabi and implementing comprehensive real property regulations in the ADGM will likely bolster investor confidence and encourage activity in the real estate sector in the area.
As it is a financial-free zone and an investment area for property ownership by foreigners, investment opportunities within the ADGM provides foreign investors with a wider selection of legal structures for property investment.
The Property Regulations introduce many concepts that are new to the UAE but may be familiar to those who are used to dealing with property matters in common law jurisdictions. The ADGM plans to establish its own courts that will hear on any matters arising from the Property Regulations and the Strata Regulations. The following property interests are recognised by the ADGM:
UAE or Gulf Cooperation Council (GCC) nationals or entities wholly-owned by UAE or GCC nationals can own freehold title to land and floors or units within buildings located in the ADGM. Foreign, non-GCC nationals and entities with any degree of non-UAE or non-GCC ownership may not own freehold title to land in the ADGM (as is the case in the remainder of Abu Dhabi), but may own floors or units within buildings. The ADGM recognises the concepts of life interests and future or reversionary interests. Joint ownership is allowed by way of either joint tenancies or tenancies in common. Joint tenancy means that each co-owner has equal rights to the whole property and that on the death of one co-owner his share automatically passes to the other co-owners. Tenancy in common means the co-owners can own different shares in the property and can pass on their shares in the property as they wish in their Wills.
Leasehold interests and sub-lease interests of up to 99 years are allowed and leases may include a right to renew. Occupational interests created by licences are treated as personal contractual arrangements that do not create real estate rights. It is not clear from the Property Regulations what the maximum term will be for an occupational interest before it will be regarded as a real estate right.
The ADGM introduces the concept of strata title for multi-occupied developments, which provides for developers to establish owners associations to run common parts of developments. We will provide further detail on the Strata Regulations next month.
The Property Regulations contain provisions dealing specifically with the creation, registration and enforcement of mortgages of property within the ADGM.
Statutory charges that impose restrictions on the use of, or dealings with, property in the ADGM are permitted under the Property Regulations. The Property Regulations do not define what is meant by a statutory charge, however it is likely to mean a form of security relating to an obligation to a government authority.
The ADGM will apply the following general principles regarding property:
- Any covenants affecting property that are considered by the ADGM Court to violate the public policy of the ADGM, the Emirate of Abu Dhabi or the UAE will be void and will have no force or effect.
- In the case of any life estate, joint tenancy or tenancy in common, any tenant in occupation of a property is prohibited from destroying the property. Reasonable wear and tear is permitted.
- There will be no merger by operation of law of any estate in property, meaning that the beneficial interest in a property will not be deemed to have merged with the legal interest or be extinguished in equity. A beneficial interest in a property is a common law principle, also known as an equitable interest, which states that the beneficial owner, rather than the legal owner, of a property will have the right to income from the property or a share in the proceeds of sale of the property. On registration of a lease where the interest of landlord and tenant vest in the same person, no merger will occur unless parties expressly state in the lease that this should occur.
- No interest in property, including a beneficial or equitable interest, can be created or disposed of except in writing and signed by the person creating or transferring the interest.
- The concept of acquiring property rights by adverse possession is expressly disallowed. Any length of adverse possession will not result in acquisition of any right or title, beneficial or legal.
- The ADGM will appoint a Registrar and any person dealing with the Registrar may assume that the Registrar has all necessary authorities to act.
- The Registrar will maintain the Real Property Register and may maintain it in any form including by way of electronic files. The Registrar will record all documents relating to the creation or transfer of property rights in the ADGM.
- Musataha and usufruct interests are not specifically recognised by the Property Regulations as being distinct from leasehold rights. The Property Regulations do, however, acknowledge that there were existing rights granted under musataha and usufruct agreements at the time the Property Regulations were published on 14 June 2015 and these interests must be registered in the Real Property Register by 13 June 2016.
- All documents lodged for registration in the Real Property Register must be in the English language and if the original documents are in another language they must first be translated. If there are any inconsistencies between the original document and the document translated into English, then the version translated into English will prevail. The Property Regulations do not state whether translations will need to be carried out and stamped by official Abu Dhabi government or ADGM-approved translators.
- Registered documents will have priority in accordance with the date on which they are registered, not according to when they were signed or dated. Earlier registered documents will take priority over later registered documents. It is, however, possible to agree to subordinate the priority of a document where all the parties agree in writing.
- Information contained in the Real Property Register is conclusive evidence of the registration of any document, the date on which the document was registered and the contents of the document.
- A document does not transfer a property right unless it is registered in the Real Property Register. The benefits of registration apply whether or not valuable consideration was paid.
- Registration is conclusive proof that a person is the owner of a property interest in a property and that the person’s title to that property is indefeasible.
The Registrar will create folios for each registerable area of real estate in the ADGM. These folios may relate to whole plots or may be created for subdivided, approved strata title interests within plots. Transfers of part only of registered folios are not allowed.
- Property in the ADGM may be leased for terms of up to 99 years. The term may be renewed on one or more occasion as the parties agree provided that the aggregate term of the lease (inclusive of any renewal terms) may not exceed 198 years.
- Leases must be registered in the Real Property Register within 28 days of signing and must contain sufficient information for the Registrar to identify the property leased, the term and any rights of renewal. The registration fees are not yet known. It is possible to register a memorandum of lease in lieu of the full lease provided the memorandum contains all the information required by the Registrar. This may be useful where the parties wish to keep certain provisions in a lease confidential.
- Any variations to leases must be registered in the Real Property Register.
- When a lease expires or is terminated, either the landlord or the tenant may apply to the Registrar to note that the lease has expired or has been terminated. It is not clear what will happen if neither party makes this application.
- A surrender of a lease will be completed when the Real Property Register has been updated.
- Property or an interest in property, for example a lease, may be mortgaged by way of a registered mortgage. It is only possible to register the whole, and not part only, of a registered property title or a property interest.
- Mortgages can be varied by the registration of a variation document, however this variation will have no effect on subsequent registered mortgagees unless those mortgagees agree.
- Registered mortgages can be discharged by registering a discharge of mortgage.
- A registered mortgagee has powers of sale, rights of repossession and rights to foreclose on default by a mortgagor but must first serve 30 days’ notice on the mortgagor to give the mortgagor the opportunity to remedy the default.
WHY PROPERTY IN ABU DHABI IS A GREAT INVESTMENT?
The markets in the Middle East are pretty jumpy at the moment, with political instability across the region, the sliding oil price and Dubai’s real estate
market going in reverse. In these turbulent seas, only a few islands
of calm remain and Abu Dhabi is one of them.
According to the Managing Director of Crompton Partners Estate Agents, Ben Crompton, there are many reasons to put your money into real estate in
- The process
Buying property in Abu Dhabi is a fairly simple and quick process. Thousands of transactions have been completed, plus banks and developers are experienced and secure. The unit mix is varied and expanding all the time. Most developments are less than five years old and popular with tenants as they stand out from the traditional older Abu Dhabi stock.
Investments in some property in Abu Dhabi can earn returns of more than seven percent on your money net (look at net returns; not gross) — there are few bank accounts or funds in the world that will give you that kind of return. There is also the potential to leverage your investment for increased returns from capital appreciation.
- No rent cap
Rent increases in Abu Dhabi are not capped and there is no rent calculator. Landlords may charge their tenants whatever the market will bear, so they can take full advantage of any rent increases.
- Legal protections
The law in Abu Dhabi is very landlord-friendly. In brief, there is no difficulty in evicting tenants once their lease term has finished. Just give them two months’ notice, and you do not need a reason not to renew the lease.
Property has gone through its boom and bust cycles like every other investment, but it remains a stable asset.
Its prices and rents have recovered well since the global slowdown and Abu Dhabi’s significant income from oil and large capital reserves mean that continual growth prospects are good. Also, the UAE Government had learnt its lesson from the crashing housing market in 2008 and has been active (by use of loan to value rules and tinkering with registration fees) in reducing the chance of future bubbles.
- Future prospects
Property prices and returns in Abu Dhabi are linked to population and supply. At the moment, the Government has a large infrastructure expansion plan in place i.e. Etihad Rail, the Midfield Terminal, Etihad Airways, the Louvre and Guggenheim etc summed up in the 2030 Plan, which will bring people to the UAE by creating jobs. Set against that is the tiny property supply in the pipeline — only another 18,000 units are due to come online in 2015 and 2016, and that’s just an increase of just 2.8 percent per year! Financial and professional services firm JLL and global leader in commercial real estate services Colliers International Group Inc. believe there is a current housing shortfall of more than 50,000 units.
- Rent payment
Rent in Abu Dhabi is paid upfront for the year, usually in one or two cheques (the second is post-dated), so this affords significant security of income and some safeguard against tenants absconding.
8.Low sophistication of current landlords
As far as the rental market goes, Abu Dhabi is an immature market with many first-time landlords. As a result, it suffers from low sophistication among property owners. Nimbler, more intelligent landlords can gain higher-than-average rents by understanding the market and what tenants are looking for. Furnishing certain units, for example, is just one of the ways you can command higher rents as very few of them are in Abu Dhabi.
“Every real estate professional will tell you that now is the perfect time to buy as your investment is about to appreciate in value hugely and make you a millionaire overnight. No one can predict if your property value is going to go up or down, so trust your gut and don’t consult the stars. Buy an investment where your rent is going to pay your mortgage with a little left over for you. You’ll be paying off the debt, accumulating equity in the asset and pocketing some change from the rental return. Be a smart investor and make sure the numbers make sense.” said Crompton.
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