By Faryal NajeebKARACHI: The real estate sector in Pakistan is losing out heavily as investments worth almost $3 billion have been transferred to the United Arab Emirates (UAE) within a span of eight months, say observers.
These investments can be made directly, or through middlemen. Locals wishing to invest directly can open foreign currency accounts in Pakistan and travel to the UAE to pay their real estate dealers themselves.
The property cannot be transferred or sold until the down payment and an additional three installments have been paid by the investor, a rule which is strictly adhered to. The method of payment depends on the type of project, say realtors.
Indirect investments are made through the hawala system, where professional middlemen advise potential investors and help transfer funds according to the requirements of real estate opportunities in the UAE. These middlemen have opened up offices in Pakistan and are well-known in the real estate industry.
K K Builders Chairman Munir Sultan said that the hawala system can be misleading. “A property may be located far away from the main city of Dubai, but dealers may portray it to be right in the centre of the city,” he said.
He said the UAE continues to attract investors because it has a more reliable reputation than Pakistan in terms of freehold properties. “The UAE has promised to complete all projects by 2010, but the same cannot be said for local projects. Furthermore, landlords in the UAE are likely to earn more through rent than landlords in Pakistan,” said Sultan.
The reason for this is that the dirham is stronger and more stable than the rupee.
Moreover, tenants in the UAE are less likely to breach property laws than those in Pakistan. Sultan explained the various crises in the country, along with the lack of facilities, are what propelled investors to shift to the UAE.
“In the UAE, investors do not have endless paperwork, nor do they to face legal hurdles,” he said.
An advantage the UAE has that Pakistan lacks is that there are several laws protecting both developers and purchasers of properties. Real estate brokers operating in Dubai are registered, certified, and ranked in a database introduced by the Real Estate Regulatory Agency (RERA). The main objective of RERA is to establish a global foundation for the real estate sector in Dubai.
The introduction of the much-awaited escrow account law (also called the Trust Account law) in Dubai in 2007 has also played an important role in establishing the foundation of Dubai’s real estate sector.
The initiation of escrow accounts has meant that issues related to real estate developments, including delays due to the lack of funds, will now be scrutinised by the authorities, RERA in particular.
Meanwhile, the Dubai housing sector is declining, owing to saturation in the property market. Foreign and local investors have already invested heavily. There does not seem to be any charm in investing further.
By the middle of 2009, it has been estimated that 80,000 of the freehold apartments in what is known as ‘new Dubai’ would be completed. This is expected to be followed by inter-city migration, with people moving towards these newly constructed properties, which in turn would lead to a decline in the rental value of existing residences in the other parts of the UAE.
Foreign freehold property owners can set up their businesses in the UAE and apply for a license, which would allow them to obtain a visa, although when the freehold concept was introduced, foreign investors were enticed with the opportunity of becoming permanent residents with permanent visas upon the purchase of freehold properties. This clause has been retracted. Now, ordinary employment visa rules apply.
Meanwhile, foreign freehold property owners living abroad would need to apply for a tourist visa to visit the country, which limits the stay to a maximum period of 30 days.
The builders and developers seem to have foreseen the original clause would be retracted. Contracts signed with investors clearly state that builders and developers have the rights to withdrawing approval of the visa or making amendments to it.
Contracts signed with investors clearly state that the former have complete rights to either withdrawing approval of visa or making amendments in it, and also state that developers have the right to demolish or reconstruct the building. Nevertheless, investors continue to flock to the UAE market, as it is viewed as politically and economically stable.
Source: The News, 4th September, 2008