Legal stability and advice drop the curtain on the uncertain



As the Cityscape Global 2010 conference begins in Dubai, we should be bracing ourselves to be inundated with surveys identifying what everyone thinks needs to be done to improve the Dubai property market.

We believe stability in the law allows investment, development and financing decisions to be made without having to consider a raft of further changes.

It would be great if all the difficult legal questions could be answered in one final "super law", but this is unlikely and the next best thing is to be sure that the certainties remain certain and uncertainties remain uncertain. Anything else causes . well, uncertainty.

We were recently asked to comment on a YouGovSiraj survey that indicated 19 per cent of people in the UAE "don't understand the real estate laws".

If you asked the same question of members of the public in England, the US or Australia, I suspect this figure would be higher. In those jurisdictions, those investing in property, whether for their home or as a business transaction, would engage the services of a lawyer as a matter of course to deal with the legal complexities and manage their risk.

This is something that has not always been seen as necessary in the UAE, with many transactions in the boom years being undertaken very quickly, and often without full consideration of the legal background.

As the market has matured, more UAE investors have accepted that the laws are complex, and as such professional help is needed.

With the legal framework also evolving and different rules in Dubai, Abu Dhabi and the other emirates, it is particularly important that up-to-date and accurate advice is sought when considering any investment.

The principal factors influencing emerging markets are uncertainty of supply and demand, the availability of credit in the local markets at reasonable rates, and local risk factors.

Improving a combination of these factors will encourage investment and allow a market to thrive. Changes to the law are capable of stimulating a market on their own where they relate to the reduction of taxation (for example, stamp duty, land registration fees and sales tax) or where they open up a market for new investors that had previously been closed to them, perhaps through relaxation of foreign ownership laws or the establishment of free zones.

Combining this with improvements in the global economic outlook, particularly in the banking sector, and greater certainty as to the supply and demand in property (for example, after announcements that some projects will be reviewed and cancelled) will no doubt assist in encouraging investment into the UAE.

Legislation should ensure investors are clear as to the legal risks they are taking and therefore can assess the financial return they expect based on the fundamentals of supply and demand, and the cost of credit.

The laws on residency and visa sponsorship are useful examples. In the boom years, some developers offered UAE residency to investors while others were more cautious in their approach.

Well-advised developers offered residency "subject to the applicable laws". This approach was prudent as the legal position throughout has been that the issuance of residency visas is a matter for the Ministry of Interior rather than a developer, regulator or land department.

The amendments to the law give legal certainty to the market. So, as long as the laws are implemented properly, applied fairly and not amended in the short term, the issue of residency will be a factor that is clear in the minds of investors, allowing them to factor this issue into their investment decision and amend their valuation accordingly.

The UAE should continue to take the opportunity to strive for legal stability, certainty and transparency in these delicate times, so that as global green shoots begin to blossom, investors are not put off the UAE market by legal risks that could be marginalised by careful legislation and clear information.

Many commentators would agree that a repeat of circumstances such as the uncertainty of implementation and interpretation of the laws relating to interim registration, capped compensation refunds and project cancellations (Dubai Law 13 of 2008 and Law 9 of 2009) should not be repeated.

Some have said that in hindsight, this was good for Dubai at a time when the market was becoming overheated. But now we should be striving for transparency and consistency in its law-making and enforcement.

Let's use what we have and let the recovery take care of itself.

Nick Clayson is a lawyer and the head of property for the Middle East region at Norton Rose

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