by Lukman Hajje, Chief Commercial Officer
Much has been already written on the UAE’s new reforms, announced earlier this week, to overhaul its visa and company establishment policies.
It’s already being touted as a game changer, a much-needed shot in the arm; forward-thinking, practical, sensible and another clear sign that the country has its sights firmly set on a post-oil future, to a knowledge-based economy.
The UAE has said it will enact changes to its residency visa policies by the end of 2018, with in-demand workers offered visas of up to a decade. This includes doctors, engineers and other professionals in the medical, science, research and technical fields, according to the government.
Off-plan real estate transactions boomed in 2017, yet sale prices and rents continue to fall as supply exceeds demand. With more off-plan projects coming up for sale and being handed over, offering 10-year visas will help steady the market but to what extent will depend upon the details.
Everyone, except for Emiratis, are, by definition of their visa restrictions, transient and not fully engaged with the UAE. But the more committed expat residents are, the more likely they are to invest here and the better for the economy.
Doctors, scientists and engineers alone won’t fill all the new projects being built, but the reforms are definitely a step in the right direction and promote the right type of real estate investment activity. With these proposed changes, the UAE government has struck a good balance between permanent residency and ensuring some residents have enough of a window of opportunity to build careers, plant roots and raise families.
We’ve seen in the past, the risk of a real estate market heavily dependent on speculation and its damaging effects on the local real estate market. Low-deposit aggressive payment schemes have again encouraged speculators to return.
Long-term residents enroll their children in schools, buy cars, groceries, furnish houses and now pay VAT. Someone renting for 10 years will have paid almost 100 per cent of the property value. With this kind of time frame, those with the means will buy, obtain mortgages and further engrain themselves into the local community and economy. End-users don’t sell in a down market unless they have to or if they are looking to upgrade.
But perhaps the biggest potential game changer in the recently-announced reforms are to company ownership structures, allowing foreigners to own 100 per cent of a company based in the Emirates.
Right now, anyone who opens shop in a non-free zone area is required to have a local partner that owns 51 per cent of the business. Only those based in free zones can be 100 per cent foreign-owned. This has been an abnormality of the region and it is hard to measure what sort of impact it has had on the local economy.
The local partner requirement, while no doubt well-intended, has been arguably counterproductive.
If its original intent was for Emiratisation and to professionally engage the Emirati population with expat entrepreneurs, it’s had limited success at best. While most of us with local partners enjoy amicable relationships, in practice, the professional aspect of that relationship is usually limited to signing of POAs and other mandatory paperwork.
Most local partners are not heavily engaged in the day-to-day operations of businesses they sponsor and are not benefiting from the professional experience that would come with that type of involvement.
The local partner requirement also causes confusion amongst potential venture capitalists and international investors who immediately devalue your business upon the discovery of the mysterious 51 per cent owner.
These new reforms are a logical and very welcome next step and confirmation that the current system could be better and will be very soon.