Infrastructure development is top of the agenda in the Middle East at the moment and with the recent announcement that Dubai is to host the World Expo 2020 together with Qatar’s plans for the 2022 FIFA World Cup, real estate investment is increasing following the financial crisis. In terms of global importance, the FIFA World Cup and World Expo rank second and third only to the Olympics, which bodes well for the construction industry in building the necessary infrastructure. This is something which is anticipated to attract substantial real estate investment to the region as investors regain confidence in the property market.
Developers and investors should be aware of the legal structure and laws applicable to the particular region within which they are operating. The laws of the United Arab Emirates (UAE) and Qatar are based on civil law systems, codified in the UAE Civil Code and the Qatar Civil Code, respectively. Dubai, being part of the UAE, is subject to both federal laws and laws specific to the emirate of Dubai and Qatar is subject to state laws.
The Civil Transactions Code Federal Law No. 1 of 1985 (as amended) in Dubai and the Civil Code Law No. 22 of 2004 in Qatar contain the general contract principles together with sections relating specifically to construction. In addition, Dubai and Qatar have numerous regulations, standards, codes of practices, guidelines and circulars in relation to building standards, the environment, health and safety guidelines and other technical conditions.
Developers and investors should also be aware of the land ownership restrictions applicable in the regions. The laws in both Dubai and Qatar restrict land ownership by foreign individuals and companies and this is one of the key obstacles faced by the region as it seeks to upgrade to emerging market status. In addition to both Civil Codes, the relevant laws are Law No. 7 of 2006 in Dubai and Law No. 17 of 2004 in Qatar. In both Dubai and Qatar, foreign nationals can only own real estate in certain “Designated Areas”. Furthermore, Qatar Law No. 6 of 2014 was recently issued (on 11 March 2014) and introduces significant changes to the legal framework governing the development and financing of real estate projects in Qatar.
Developers and investors wishing to operate within the region may need to consider their company structure in order to comply with the Gulf Cooperation Council (GCC) ownership requirements and/or exploring ownership structures which comply with the foreign ownership restrictions applicable in the region. One way of ensuring compliance with the foreign ownership restrictions is by way of a long-term lease, or through a “mudaraba” arrangement which involves the foreign entity “partnering” with a local company. In addition, developers and investors should be aware that foreign nationals can acquire lesser real estate rights in the form of “Musataha” rights, that is, the right to occupy and build on land for periods of up to 50 years (renewable in Qatar) and “usufruct” rights, that is, the right to use and occupy land belonging to another person for a period of time (up to 99 years).
World Expo 2020
In order to support the estimated 25 million people expected to visit Dubai in 2020 (a prediction that is up 15 million from 2012), Dubai is expected to invest over $8.1 billion in new infrastructure to host Expo 2020 and it is estimated that as much as $43 billion investment in infrastructure projects will be required in preparation for the event, according to Deutsche Bank.
As part of the Expo bid, Dubai focused on its ability to attract visitors due to its strategic location, developed infrastructure and capacity for expansion. According to the bid, two thirds of the world’s population live within eight hours of the city and Emirates Airlines have an extensive expansion plan making the region accessible to the world. Additionally, the Expo site’s strategic location between Dubai and Abu Dhabi and adjacent to the Dubai World Central airport and Jebel Ali Port means that Dubai will be well placed to provide ease of access for the millions of international and local visitors expected.
Infrastructure development projects include airport expansion, the construction of terminal 3 at Jebel Ali Port and the expansion of the Dubai Metro Red Line from the existing terminus to Dubai World Central airport which is close to the proposed Expo site. Unlike other sectors, investment in infrastructure development is essential and is expected to pave the way for development in other areas. Asset markets in Dubai are recovering rapidly and it is clear that infrastructure projects abandoned or delayed in the wake of the financial crisis are now resuming with greater preparation and regulation. This will undoubtedly promote market confidence and thereby attract great amounts of real estate investment to the region.
FIFA World Cup 2022
Ahead of the 2022 FIFA World Cup, it is estimated that Qatar will invest $225 billion in transport infrastructure with 40 per cent of the Government’s budget allocated to infrastructure projects between 2011 and 2016.After successfully completing a 20- year programme of developing its natural gas resources in 2011 to become one of the most important energy producing nations in the world, Qatar is now focusing on infrastructure investment in its non-oil and gas sectors. Investments include the construction of a new airport (now complete and scheduled to open at the end of May 2014), new metro and rail systems, and new deep-water seaport and road development. In addition, the Qatar Tourism Authority plans to invest $20 billion on tourism infrastructure to cope with the surge of visitors expected as the world turns its eye on Qatar. The number of tourists is currently growing at a rate of 15.9 per cent compounded annually and is expected to reach 3.7 million by 2022.
Opportunities for real estate investors
What does this mean for real estate investors within the region? It is clear that the commitment to infrastructure investment as part of the Expo 2020 and FIFA World Cup 2022 will create immense opportunities for real estate developers and investors in Dubai, Qatar and the region as a whole.
Bank of America Merrill Lynch have estimated that hosting the Expo 2020 could boost Dubai’s GDP by 24.4 per cent to $23 billion between 2015 and 2021 and a Dubai Chamber of Commerce Study indicated that business confidence was at an all-time high as a result of Dubai’s successful Expo bid. It is anticipated that growth will be felt across the wider economy with opportunities for investors particularly in the tourism, hospitality, transportation, logistics and retail sectors.
In Qatar, demand for low to high end hotel accommodation is set to increase and numerous hotel developments are planned for the coming years. In addition, there is the opportunity for commercial units such as shopping malls as well as the development of affordable housing to accommodate the growing population.
Previous trends suggest that the opportunities for real estate investors are significant with the boom in infrastructure development within the Middle East. Improvements to the transport network around Dubai have had a dramatic effect on pricing, according to the Dubai Roads and Transport Authorities. For example, properties situated in the current prime areas around the Dubai Metro and around the developed business and marina areas have seen a strong price appreciation with areas further inland where infrastructure is less developed still offering great value. This is a sure sign that infrastructure development has a dramatic impact on pricing and improvements to standard of living, and provides a lucrative opportunity for real estate investors.
And it’s not just Dubai and Qatar that will benefit from infrastructure development and real estate investment. The vast construction effort as a result of hosting two of the big three globally significant events is predicted to have a domino effect which will be felt across the whole GCC region, creating opportunities for businesses operating across the construction industry. Within the UAE, the estimated total value of infrastructure projects planned or in progress is $549 billion. Saudi Arabia is planning the expansion of King Abdul Aziz International Airport, a development of a high-speed rail track connecting Mecca and Medina, and major railway projects. In Kuwait projects include the Kuwait City metro, Kuwait International Airport Terminal and the construction of motorways.