Construction and real estate players in Abu Dhabi look abroad for fresh investment

With real estate a key source of foreign investment, Abu Dhabi’s government has been gradually easing restrictions on foreign ownership to sustain market growth. This imperative has taken on added importance since the drop in global oil prices beginning in late 2014, leading to new public and private initiatives to draw in further overseas investment.

Market Opening

Whereas Dubai first opened its real estate sector to foreigners in 1997, it was not until the passage of Law No. 19 of 2005 that non-UAE nationals could own property in Abu Dhabi. This legal change initially allowed foreign nationals to acquire property in three designated investment areas, under two forms of ownership rights: usufruct (leasehold agreements) and musataha (land development contracts). Usufruct rights give a party ownership of a property, but not the underlying land, for a period of 99 years, while 50-year musataha rights give the party the right to use and exploit land and can be extended once for an additional 50 years. On top of these provisions, GCC nationals were granted the additional right to freehold ownership in the designated investment areas.

The Abu Dhabi government has since introduced further measures aimed at increasing its attractiveness to foreign investors. This has included expanding the number of investment areas from three to 11, as well as introducing new market-regulating laws, such as the comprehensive registration requirements for property interests and mandatory escrow accounts for off-plan developments stipulated in Law No. 3 of 2015. At a federal level, the May 2018 announcement that the UAE would introduce a 10-year residency visa – up from the existing two-year visa – for certain professions and investors could be a boon for the sector in the medium term. The impact of the new law is likely to be more keenly felt in the residential segment, although some real estate sector experts anticipate the change will also incentivise business owners to purchase office and retail space instead of renting. Since 2005 real estate has grown into Abu Dhabi’s largest sector in terms of foreign direct investment (FDI). FDI into the sector grew by 7.2% in 2017 to reach $8.1bn, or 27.7% of the emirate’s total $29.4bn inflow.

Investment Office

Emblematic of the Abu Dhabi government’s continued efforts to attract further foreign investment to the sector was the early 2018 formation of a new investment office within the Department of Urban Planning and Municipalities (DPM). The DPM investment office’s mandate is to act as a private sector partner to draw investment into real estate, including a wide portfolio of municipal projects in which interested parties can invest on a public-private partnership basis. Under the same roof as both urban planning and municipal services, it can support prospective investors with investment ideas, grant them access to master plans for the next 20 years and facilitate the permit-obtaining process. In an interview with OBG, Yousef Al Ali, the director of the DPM investment office, described the office as “an investment structure supporting DPM’s overall strategy”, which is designed to streamline and increase the transparency of the investment process. “The DPM investment office is developing investment partnerships with the private sector from project initiation to operation,” he told OBG.

Foreign Ownership Limits

Private developers have also begun to take further steps to draw in higher levels of foreign investment. For example, in March 2018, just two days after it announced a $8.2bn joint venture with Dubai-based developer Emaar Properties (see analysis), shareholders at Abu Dhabi’s Aldar Properties approved a proposal to increase the company’s foreign ownership limit from 40% to 49%. In the same month Aldar was one of several listed companies to participate in the first roadshow launched by the Abu Dhabi Securities Exchange in New York. The event, which is aimed at bolstering individual and institutional investment in the exchange, continued on to London in June, with plans to visit Asia in following months.