Goodbye black gold, welcome bricks and mortar.
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Changes to legislation to attract more foreign investment in Dubai have sparked a boom in property development. Rachel Irvine reports from the emirate on the latest schemes Bizarre as it may sound, running out of black gold could be the best thing to happen to Dubai since oil was discovered there in the 1960s. This United Arab Emirate has embraced the decision to diversify its economy away from oil to great effect. Oil revenue now accounts for only 7% of the emirate’s GDP. In the past year, Dubai has been actively removing barriers to foreign investment, but most importantly, it has opened up the property market to foreign ownership. The decision to grant freehold ownership of properties to locals, Gulf Cooperation Council nationals and, most importantly, expatriate investors has unleashed a gold rush in both construction and investment. It has also led to another first for any Islamic country - mortgages. Mortgages are a tricky business under Islamic law, as lenders cannot repossess someone’s main residence even if they default on payment. Equally, Muslims cannot pay or receive interest. But those rules are now being bent. Resident expats will be offered up to 90% finance over 25 years, while non-residents can have a mortgage for up to 70% of the purchase price over 15 years. Foreclosing would be a last option, stresses Mohammed Ali Al Hashimi, the general manager of Dubai’s first and only mortgage bank, Amlak, as the bank will be run on Islamic principles. Ali Al Hashimi says that although Dubai nationals are given land and money to build a house, mortgages will also be available to them. “There is a long waiting list and the 500,000 dirhams ([pounds sterling]83,500) the government gives you doesn’t cover all the costs,” he says. “Also, personal loans are capped at AED250,000, which has to be paid back within five years.” No-one can dispute the benefits this paradigm shift will have for Dubai, but there is a question mark over whether anyone is in control of rapidly changing events. Ali Al Hashimi dismisses suggestions that the pace of development is not sustainable, stressing that Amlak’s business has grown 800% in one year. But valuation agents say the bank will not lend money on properties older than five years. One agent working in Dubai admits that, given the pace of development, he will not do feasibility studies for clients considering investment because, on paper, “it just doesn’t work”. But he says the local ethos of “build it and they will come” has yet to be disproved, and that a “bigger, better, most” culture has definitely taken hold. Indeed, an insomniac in Dubai bored with counting sheep could quite happily substitute cranes. One of the most prolific developers in the region, Emaar, is responsible for many of them. Despite its relatively recent establishment in 1997, it has an asset base of AED21.5bn ([pounds sterling]3.7bn), and is one of the few developers allowed to sell freehold properties. Rather fortunately, it owns Amlak. More : accessmylibrary.com |